Hengshun Vinegar(SH:600305) KAIYUAN SECURITIES·2024-04-30 15:00Investment Rating - The investment rating for the company is "Outperform" (Maintain) [2][36]. Core Views - The company reported a revenue of 2.11 billion yuan in 2023, a year-on-year decrease of 1.5%, and a net profit attributable to the parent company of 87 million yuan, down 37% year-on-year. The revenue for Q4 2023 was 470 million yuan, an increase of 2.4% year-on-year, but the net profit attributable to the parent company was a loss of 51 million yuan, which is a larger loss compared to the previous year. For Q1 2024, the revenue was 460 million yuan, a significant decline of 24.9%, with a net profit of 55 million yuan, down 24.2% year-on-year. The company is adjusting its internal operations, leading to a downward revision of profit forecasts for 2024-2025 and the introduction of a profit forecast for 2026 [5][17]. Financial Performance Summary - In 2023, the company's condiment business achieved a stable growth of 2.3%. The vinegar category grew by 0.8%, while the wine and sauce categories saw declines of 8.4% and 23.6%, respectively. The western region experienced a growth rate of 16.1%, while the competitive environment in the South China market led to a decline of 1.1%, affecting overall growth. The decline in Q1 2024 revenue is attributed to the incomplete recovery of the catering market and ongoing intense competition. The vinegar category saw a decline of 20.0%, while the wine and sauce categories dropped by 30.9% and 49.3%, respectively. However, with current low inventory levels, revenue is expected to gradually recover throughout the year [5][6][17]. Profitability and Cost Management - The net profit margin in 2023 decreased by 2.3 percentage points to 4.1%, primarily due to an increase in the sales expense ratio by 2.4 percentage points to 18.6%, mainly from increased marketing expenses for older products. In Q1 2024, the gross profit margin improved by 6.3 percentage points to 41.4%, attributed to the reduction of low-margin SKUs and a decrease in raw material costs. The sales and management expense ratios increased by 4.6 percentage points and 1.7 percentage points, respectively, indicating continued investment in market promotion. Looking ahead, the downward trend in costs is expected to continue, while the sales expense ratio is anticipated to decrease compared to 2023. The net profit margin is expected to remain stable year-on-year [6][17]. Internal Optimization Opportunities - The company has room for internal optimization, including: 1. Coordinated development of the three main product categories, clarifying the product matrix, and focusing resources on advantageous layouts 2. Continuing to advance brand strategy and enhancing the precision of advertising investments 3. Expanding channel development, particularly in catering and e-commerce 4. Promoting capacity integration and planning for capacity release. The year 2024 is expected to be a year of adjustment, with hopes that deepening state-owned enterprise reforms will bring more vitality to the company [6][17].