Event: Golden Dragon Fish achieved operating income of 118.714 billion yuan in the first half of 2023,-0.64% year-on-year, and net profit of 966 million yuan,-51.13% year-on-year. In the second quarter alone, the company's operating income was 57.673 billion yuan,-8.38% compared with the same period last year, and the net profit returned to its mother was 112 million yuan,-94.00% compared with the same period last year.

The proportion of sales in catering channels increased, and the volume of kitchen food business increased and decreased. 2023H1 sold 11.092 million tons of kitchen food (year-on-year + 9.46%), revenue 73.525 billion yuan (year-on-year-3.43%), gross profit margin 6.60% (year-on-0.49pct), and total profit of 1.175 billion yuan (year-on-year-10.7%). In the first half of the year, due to the decline in the price of raw materials, the price of the company's end products fell, resulting in a decline in kitchen food revenue compared with the same period last year. From a sub-channel point of view, with the recovery of the domestic catering market, the company's catering channel kitchen food sales increased compared with the same period last year, but the profit of the flour business decreased significantly due to the consumption of early high-priced wheat inventory. Retail channel sales declined compared with the same period last year, but benefited from a decline in raw material prices, gross profit margin, profit increase. Overall, due to the increase in the proportion of food and beverage sales, the company's kitchen food business gross profit margin and profits are lower than the same period last year.

Feed raw materials and oil science and technology business profits under pressure. 2023H1 sold 11.7 million tons of feed raw materials and oil technology products (+ 16.14% compared with the same period last year), realized revenue of 44.46 billion yuan (+ 4.70% year-on-year), gross profit margin of-0.32% (year-8.37pct), and total profit of-445 million yuan (year-on-year-128.6%). Affected by the high supply of soybeans in South America and poor domestic demand for soybean meal, the price of soybean meal fell rapidly from February to May, and oil prices continued to decline under the resumption of supply in the producing area. In the first half of the year, the company squeezed 6.678 million tons of oilseeds, an increase of 17% over the same period last year, but the crushing profit was at a loss. On the other hand, the profits of oil technology products have been squeezed in the case of falling terminal prices, and profits have fallen sharply compared with the same period last year.

Investment income and fair value change profit and loss: the company's investment income in the first half of the year is 647 million yuan (year-on-year + 1.642 billion yuan), fair value change profit and loss is 364 million yuan (year-on-year-66 million yuan). The investment income of single Q2 company is 492 million yuan (year-on-year + 19 million yuan), and the fair value change profit and loss is-150 million yuan (year-on-year + 12 million yuan).

Since March, with the further decline in oil prices, the company's Q2 investment income has increased month-on-month, as hedging reflected in the current profit and loss remains profitable.

The channel continues to sink, and the central kitchen business continues to advance. The sinking of the channel at the B end of the company started later than that at the C end. At present, the regional coverage at the county level is about 70% to 80%, and there is still some room for improvement. coupled with the increase in the category of products such as rice noodles, the number of dealers in the company continues to grow, with 7840 at the end of 2023H1 and 72 more than at the end of 2022. The growth mainly comes from the western and northern regions. In terms of central kitchen business, Hangzhou, Zhoukou and Chongqing have been put into production in 2022. With the completion and production of central kitchen bases such as Xingping, Shenyang and Langfang and the improvement of capacity utilization, central kitchen business is expected to contribute incremental profits to the company in the future.

Investment suggestion: the company has deep brand, channel and cost barriers in the field of grain and oil, and has continued to expand new products and business with the help of platform advantages in recent years. In the second half of the year, with the gradual digestion of high-priced raw material stocks and the pick-up of squeezing profits, the company's profitability is expected to improve. We adjust the profit forecast and expect the company's EPS to be 0.58,0.85,1.02 yuan respectively from 2023 to 2025, which is based on the closing price on August 15, 2023, corresponding to PE of 62.6,42.4,35.5 times, maintaining the "overweight" rating.

Risk tips: sharp fluctuations in agricultural prices, derivatives trading risk, exchange rate risk, food safety risk, policy change, natural disasters.