The growth rate of supermarket and restaurant channels was impressive in '23, and distribution channels were basically flat compared to the same period last year. 24Q1 revenue/profit ratio was +15%/+54%. Profit performance was impressive, and distribution channel growth picked up. Looking ahead to the whole year, revenue-side catering channels have huge potential. Downstream distribution channels have recovered, new whipped cream products have been released, and channel reforms have shown results, and revenue side targets can be expected to be achieved. Profit side raw material prices have declined steadily and slightly. At the same time, the company has accumulated certain advantages in raw material procurement and price locking. Cost control results have been shown. Combined with a recovery in production capacity utilization, an improvement in net interest rates can be expected throughout the year. We expect EPS to be 1.49 yuan and 1.88 yuan in 24-25, corresponding to 22 times PE in 24 years, maintaining the “gain” rating.

Incident: The company released its 2023 annual report and 2014 quarterly report. In 23, the company achieved revenue/profit/net profit of 35.0/0.7/120 million, respectively, +20.2%/-49.2%/-15.0% year-on-year. 24Q1 achieved operating income/profit/ net profit after deduction of $9.2/0.8/0.7 billion, respectively, of +15.3%/+54.0%/+40.3% year-on-year, respectively. The results were in line with expectations. The company's 24Q1 cash repayment of 960 million was +14.6% year over year, slightly slower than revenue growth. In 2023, the company plans to pay a cash dividend of 0.5 yuan (tax included) per share, with a dividend ratio of 116%.

In 23, supermarket and restaurant channels achieved high growth, and distribution channels remained basically the same as compared to the same period last year. The revenue share of distribution/supermarkets/restaurants, tea and new retail channels in 23 years was 55%/30%/15%, respectively. 1) Distribution channels were basically flat year over year due to weak demand from downstream bakery stores; 2) supermarket channels increased by about 50% year over year, core supermarket channel growth and good sales of core items and new products; 3) Benefiting from the development of new customers such as core restaurants and hotel chains, the year-on-year growth rate of food, tea and new retail nearly doubled. Frozen baking/baking ingredients were +23.9%/+12.5%, respectively. In terms of volume and price breakdown, frozen baking volume and price ratio were +19%/+4%, and the amount and price ratio of baking ingredients was +17%/-4%. Among them, cream/fruit products/sauces were +27.7%/-8.5%/+18.1%, respectively. Benefiting from the introduction and active promotion of whipped cream products, the new UHT cream production line achieved revenue of over 150 million in half a year, and the cream performance was outstanding. By the end of '23, the company had more than 2,200 dealers and more than 600 direct sales customers.

Revenue was steady for 23 years, and profits were pressured by asset impairment and accelerated accrual of share payment fees. The company's gross margin in '23 was 0.4 pct to 31.4% year on year (single Q4 gross margin -4.3pct year on year), mainly Q4 companies supported core dealers. Affected by rising transit warehouse logistics costs, marketing and exhibition investment and share payment costs, the fee rate increased year-on-year, sales/management expenses were +1.6 pct/+1.1 pct year on year, and the income tax rate increased 3.0 pct year-on-year, affected by falling inventory prices and accelerated calculation of equity incentive expenses. 2.1% (23Q4 net margin year-on-year - 14.4pct), under pressure on profitability.

The 24Q1 revenue/profit ratio was +15%/+54%, and the cream sector performed well. 24Q1 revenue/profit was +15.3%/+54.0% year-on-year respectively, and net profit was +22.3% year-on-year after excluding share payment fees. The growth rate of Q1 baking ingredients was faster, with a year-on-year increase of about 56%, which is a good contribution to the growth of whipped cream. Q1 frozen baking was basically the same as the previous year. By channel, Q1 distribution channels increased 25% year over year; supermarket channels experienced a year-on-year decline due to high traffic and high base during the Spring Festival; food, tea, and new retail channels increased by 50+% year over year. Benefiting from an increase in capacity utilization and a decrease in the average procurement price of raw materials, 24Q1 gross margin was +0.6 pct to 32.6% year on year. The company strengthened cost reduction and efficiency control, and the sales/management expenses ratio was +0.2 pct/-0.7 pct year on year. Ultimately, Q1 achieved a net interest rate of 8.4%, +2.1 pct year over year.

24-year outlook: Channel integration has shown results, and catering and distribution channels continue to grow. The Q1 growth rate of the catering channel and the baking channel was impressive. The baking channel was repaired month-on-month, and is expected to achieve double-digit growth in 24. The catering channel continues to grow at a high level. With product promotion and breakthroughs from major core customers, it is expected to achieve high double-digit growth. The supermarket channel remains stable under a high base, and focus on new products. In terms of organizational structure, after channel integration promoted, marketing personnel efficiency increased year-on-year, and results gradually became apparent.

Investment advice: Distribution channels are picking up, and pay attention to the performance of new whipped cream products. Q1 revenue/profit ratio was +15%/+54%. Profit performance was impressive, and distribution channel growth picked up. Looking ahead to the whole year, revenue-side catering channels have huge potential. Downstream distribution channels have recovered, new whipped cream products have been released, and channel reforms have shown results, and revenue side targets can be expected to be achieved. Profit side raw material prices have declined steadily and slightly. At the same time, the company has accumulated certain advantages in raw material procurement and price locking. Cost control results have been shown. Combined with a recovery in production capacity utilization, an improvement in net interest rates can be expected throughout the year. We expect EPS to be 1.49 yuan and 1.88 yuan in 24-25, corresponding to 22 times PE in 24 years, maintaining the “gain” rating.

Risk warning: macroeconomic impact, increased competition, new product promotion falling short of expectations, sharp rise in raw material costs, falling short of expectations, etc.