Incident: Ligao Food's revenue in 2023 was 3.499 billion yuan, up 20.2% year on year, achieving net profit of 73 million yuan, down 49.2% year on year. After excluding share payments corresponding to equity incentives not involving cash outflow, net profit to mother was 186 million yuan, down 15.4% year on year under a comparable scale. 1Q24 achieved revenue of 916 million yuan, an increase of 15.3% year on year, and achieved net profit of 77 million yuan, an increase of 54.0% year on year.
The performance exceeded market expectations.
Frozen baking is growing rapidly, and cream revenue is being released flexibly. In terms of products, in 2023, the company achieved revenue of 22.1/6.5/1.9/2.3/190 million yuan, a year-on-year change of +24%/+27%/-8%/+18%/-9%. Under the rebound in supermarket channel revenue and high growth in catering channel revenue, the core frozen baking revenue continued to grow rapidly. The company launched the cost-effective whipped cream product 360 PRO, which led to rapid growth in the cream business.
Revenue from the supermarket+restaurant channel is growing rapidly, and the distribution channel for cake shops has improved. In terms of channels, distribution/direct management channels achieved revenue of 19.7/1.49 billion yuan in 2023, an increase of 4%/49% over the previous year. In terms of final sales customer categories, distribution channel revenue accounts for nearly 55%, which is basically the same year on year. With the gradual restoration of cream sales and bakery channels, the drag on the company from distribution channels is expected to be reversed; supermarket channels account for nearly 30% of revenue, up about 50% year on year, and innovative channels such as food, tea, and new retail account for nearly 15% of revenue, which in total nearly doubles the year-on-year growth rate.
The company further refines management and is expected to continue improving efficiency and quality. In response to the problems existing in the business process, the company also proposed practical optimization plans: 1) The organizational structure and incentive mechanism of the product center were adjusted to allocate personnel according to the “field of responsibility for segmentation” mechanism to create larger, higher quality products; 2) In terms of procurement, the model under the jurisdiction of branches and divisions was transformed into unified supply chain center coordination, which is expected to become an important means for the company to increase profit margins; 3) Further promote channel integration, and increase the average labor efficiency of first-line sales personnel by 10%; 4) Strictly control and implement rolling budget management and cost control to optimize warehouses Storage logistics layout, promote the abolition of inefficient external warehouses in an orderly manner, and strictly control staffing.
The decline in costs has led to an increase in gross margin, and cost control is good. 1Q24's gross profit margin was 32.59%, up 0.56 pct year on year. This is an increase in capacity utilization rate and company procurement optimization. 1Q24 sales/R&D expenses ratio was 12.10%/3.55%, with a year-on-year change of +0.21/-0.13 pct. The rate control was better. 1Q24 management expenses rate was 6.57%, a decrease of 0.73 pct year on year. The rate improvement was obvious, and the effects of scale reduction and efficiency measures were gradually reflected. Overall, 1Q24 achieved a net profit margin of 8.30%, an increase of 2.04 pcts over the previous year.
Profit forecasting, valuation and rating: Combined with Q1 performance exceeding expectations and the principles of medium- to long-term prudential evaluation, we adjusted the 2024-25 net profit forecast to RMB 2.95/366 million, a change of +2%/-10% from the previous time, and added the 2026 net profit forecast to RMB 405 million. The current stock price corresponds to PE of 21/17/15 times, maintaining a “buy” rating.
Risk warning: downstream demand is slowing down, raw material costs are rising, and new product sales fall short of expectations.