Core view: Due to weak demand for frozen products on the C-side, the company optimized and adjusted the channel side in Q1, and the quick-frozen business did not improve in the first quarter. Since mid-'23, the company's market value has been deeply adjusted. The current valuation only reflects the actual value of the mooncake single business. Currently, it already has a good margin of safety, waiting for channel-side optimization and C-side consumption recovery in the food business.

Adjust profit forecasts to maintain a “buy” rating. Due to weak demand for quick freezing on the C-side and optimization adjustments on the company's channel side, we lowered our 24-25 profit forecast. The company's net profit for 2024-2025 is estimated to be 59/ 680 million yuan respectively (the previous 24-25 forecast was 8.4/1.08 billion yuan), and the adjusted performance growth rate is 7.2%/14.6%. Considering the deep adjustments in the company's market value since mid-'23, there are certain barriers on both the supply and demand sides of the mooncake business, which contributes to the company's main profit. The current valuation only reflects the value of a single mooncake business. It already has a good margin of safety, and maintains a “buy” rating.

24Q1 results are in line with expectations. In Q1 2024, the company achieved revenue of 1.01 billion, an increase of 10.0% year-on-year. Net profit to mother was $70 million, up 2.2% year over year, in line with our previous expectations. Among them, the frozen food business achieved revenue of 30 billion yuan, a year-on-year decrease of 4.1%, the catering business revenue of 380 million, an increase of 13.3% year-on-year, and other products achieved revenue of 30 billion yuan, an increase of 27.6% over the previous year.

The increase in the share of the catering business led to a decline in gross margin, and Q1 fee control was good. The overall gross margin of the 24Q1 company was 29.8%, down 2.6 pct from the previous year. The decline in gross margin was mainly due to an increase in the share of revenue from the low-profit catering business. The 24Q1 sales expense ratio, management expense ratio, and financial expense ratio were 9.8%/8.4%/-0.1%, respectively, down 0.4/0.7/1.3 pct from the previous year. Expense control in the first quarter was good.

Demand for quick freezing is weak, and the distribution network has been optimized and adjusted. Due to the high base of 23Q1 and weak consumption of C-side quick-frozen products, the 24Q1 quick-freezing business is under pressure. In recent years, changes in consumer habits have led to weakening sales in some traditional distribution channels. The company actively adjusted and optimized the dealer network. As of 24Q1, 574 dealers in Guangdong Province were adjusted to 559, domestic and overseas dealers were adjusted from 473 to 445, and 1 new overseas dealer was added to 26.

Risk warning events: risk of demand for frozen food falling short of expectations; risk of brand aging; risk of seasonal fluctuations in business; risk of untimely update of research report usage information.