Introduction to this report:

After the company's new production capacity was launched, the fixed costs of supporting expenses combined with depreciation and amortization rose. Profits were affected in the short term. Subsequently, demand gradually recovered. Sales results are expected to gradually become apparent due to strengthened staffing and channel development, while cost efficiency is expected to increase.

Key points of investment:

Investment advice: Maintain an “Overweight” rating. Considering weak demand recovery and increased supporting costs after the company's new plant is put into operation, the 2024-25 EPS forecast was lowered to 1.01 (-0.30) and 1.19 (-0.39) yuan, and the 26-year forecast was added by 1.39 yuan. Refer to the comparable company considering that after demand recovery, the company was more flexible to improve and be given 36X PE for 24 years, and the target price was lowered to 36.5 yuan.

Performance fell short of expectations. The company's 23 year revenue was 799 million yuan, +0.10% year over year, net profit to mother was 135 million yuan, -5.42% year over year, net profit of 131 million yuan, +2.07% year on year; single 23Q4 revenue of 180 million yuan, -5.67% year on year, net profit to mother of 28 million yuan, -13.91% year on year; single 24Q1 revenue of 166 million yuan, -17.92% year on year.

The cost of beef, lamb, etc. is low, and volume increases and prices are reduced. Revenue from beef/poultry/pork/mutton/fish/shrimp was -3.9%/+7.7%/+22.0%/+1.6%/-7.3%, respectively; sales volume was +6.7%/+7.1%/+10.3%/+23.4%/+4.6%/-5.4%, respectively. Meat costs were low, and overall price increases and decreases for various products. The gross margin of beef and lamb in 23 years was +5.8pct, which is particularly evident. 23Q4 overall gross margin was +3.4pct year on year. The 24Q1 gross margin is expected to be 1.2 pct year-on-year, mainly due to the company's product price adjustments based on the procurement situation, compounded by the impact on capacity utilization.

Launch new production capacity and strengthen market development. The company increased staffing and channel development to match new production capacity, but in addition to the increase in supermarket development contributions, all channels were under pressure in the short term. Among them, there was a net decrease of 7 franchisees in 24Q1, revenue was -16% year-on-year, and store opening and store efficiency still needed to be improved. 24q1 sales/management rates were +1.7/+2.9pct, respectively. Subsequently, profits are expected to gradually improve with the return of old factories and stricter cost efficiency controls. At the same time, profits are expected to gradually improve. At the same time, it is expected that demand recovery and channel development will bring revenue boost.

Risk warning: macroeconomic fluctuations, increased market competition, and fluctuations in costs and expenses.