The company achieved steady revenue growth in 2022, and rising raw material prices led to a decline in profitability. Under external disturbances, the company actively focused on the development of the main condiment business, and took multiple measures such as products and channels to enhance internal strength. Currently, demand for terminals is gradually recovering, and it is hoped that after the results of future corporate equity disputes are clear, internal and external joint efforts will be made to maintain healthy development. Maintain a “buy” rating.

In 2022, the company's revenue/net profit attributable to the mother/net profit after deducting non-return to the mother was +4.4%/-179.8%/-22.5% compared with the previous year. Delicious Fresh's performance was in line with expectations. In 2022, the company achieved revenue of 5.34 billion yuan, an increase of 4.4% over the same period, and net profit of 590 million yuan, a decrease of 179.8%. This is mainly due to the impact of estimated liabilities related to the filing of lawsuits, after deducting net profit of 560 million yuan, a decrease of 22.5% from the same period. Among them, 2022Q4 achieved revenue of 1.39 billion yuan, a decrease of 18.7%; net profit of the mother was 1.01 billion yuan, a decrease of 369.4%; after deducting net profit of the non-return mother was 150 million yuan, a decrease of 57.9%. By business, the company headquarters achieved revenue of 148 million yuan in 2022, a decrease of 50.3%, and net profit of the mother was 1.17 billion yuan, a decrease of 1.28 billion yuan over the previous year. This was mainly due to the estimated impact of liabilities (net profit realized after excluding the impact of the impact was 7.63 million yuan, a decrease of 110 million yuan over the previous year, mainly due to a decrease in real estate revenue). Delicious Fresh achieved revenue of 4.95 billion yuan in 2022, an increase of 7.3%, and Guimu's net profit of 550 million yuan and a decrease of 9.9% (of which Q4 revenue/Guimu's net profit fell 1.6%/21.1% respectively).

Achieve steady growth throughout the year and continue to expand channels. The company's condiment business achieved steady growth throughout 2022. Among them, Q4 came under pressure due to a higher base due to price increases in 2021-Q4 that encouraged dealers to prepare goods.

By category, in 2022, the company achieved revenue of 30.3/6.0/5.0/5.0/770 billion yuan for soy sauce, chicken powder, edible oil, and other condiments, respectively, up 7.0%/9.2%/1.9%/9.3% respectively. The slow growth of edible oil was mainly affected by price increases. Q4 was -4.1%/+3.0%/+2.6%/+1.8%, respectively. Looking at the subregion, the company's south/east/midwestern/northern regions achieved condiment revenue of 20.4/11.3/10.1/7.1 billion in 2022, respectively, up 7.0%/0.8%/11.2%/12.6%, respectively. Q4 was -2.5%/-15.9%/+9.2%/+15.7%, respectively. The slow growth in the eastern region was mainly due to the impact of the epidemic on catering channels. In addition, the company continued to expand channels. The number of dealers increased by 301 in 2022 (net increase of 61 in Q4), the district and county development rate reached 68.12% (8.15 Pcts for the whole year), and the development rate of prefecture-level cities reached 93.47% (1.19 Pcts for the whole year).

Higher raw material prices have led to a decline in gross margin, overall cost ratios have been steady, and profitability has declined. Looking at Delicious Fresh Company, the gross margin of Delicious Fresh fell 2.7/3.1 pcts respectively in 2022/Q4, mainly due to the increase in purchasing unit prices for major raw materials and packaging materials such as soybeans and additives. The overall cost ratio is relatively stable. In 2022/Q4, the sales expense ratio of Delicious Fresh was +0.8/+2.1Pcts compared to the previous year, mainly due to the increase in sales staff remuneration and operating expenses; the management expense ratio was +0.4/4.7 Pcts, mainly due to the increase in job stabilization allowances and performance bonuses; the financial expense ratio was -0.5/-0.2 Pct year-on-year, mainly due to a decrease in interest expenses and an increase in deposit interest income; the R&D expense ratio was -0.1/+0.5Pct year-on-year. The combination of the above factors led to a year-on-year decline in the net interest rate of 2022/Q4 by 2.1/3.1 Pcts to 11.0%/12.5%, respectively.

Take multiple measures to respond positively, and look forward to continued improvements. Despite facing external disturbances such as local epidemics, rising raw material prices, and litigation disputes in 2022, the company actively promoted the development of its main condiment business, boosted employee enthusiasm, and achieved steady growth. Looking ahead to 2023, terminal demand will continue to recover, and the company is also taking many measures to promote steady growth. In terms of products, the company successfully launched high-end zero-additive soy sauce and Chubang Gold Award crayfish seasoning in 2022. According to its 2022 annual report (same below in this paragraph), the company plans to launch a new series of salt-reduced products in 2023; in terms of channels, the company plans to continue developing a blank market and achieve fine management in 2023, with a net increase of 200 dealers throughout the year. It is hoped that after the outcome of the subsequent equity dispute is clarified, the improvement in external demand and the improvement of internal operations will form a joint effort to push the company to maintain healthy development.

Risk factors: The impact of the short-term epidemic exceeded expectations; pressure on raw material costs; company channel expansion fell short of expectations; divestment of the company's real estate business fell short of expectations; uncertainty in corporate equity disputes.

Investment proposal: Based on factors such as the company's performance and external operating environment, adjust the company's 2023/2024 EPS forecast to 0.90/1.06 yuan (the original forecast was 1.03/1.26 yuan), and the new 2025 EPS forecast was 1.23 yuan. Referring to the comparable companies Haitian Flavor and Qianhe Flavor (corresponding to Wind's unanimous forecast of PE for 2023, 43 and 50 times, respectively), the company was given 45 times PE in 2023, corresponding to a target price of 40 yuan. Maintain a “buy” rating.