Incident: The company released its semi-annual report for 2023. In the first half of the year, it achieved operating income of 1.87 billion yuan, an increase of 3.1% over the previous year, and net profit of 260 million yuan, an increase of 5.8% over the previous year. Among them, 2023Q2 achieved operating income of 1.65 billion yuan, an increase of 9.6% over the previous year, and net profit to the parent group of 320 million yuan, an increase of 16.8% over the previous year. The performance was better than market expectations.

Rice dumplings are growing steadily, and we look forward to the release of mooncakes during the Mid-Autumn Festival. 1. By product, in the first half of the year, rice dumplings, meals, egg products and pastries achieved revenue of 1.58 billion yuan (+4.5%), 70.99 million yuan (+1%), and 180 million yuan (-5.9%), respectively. Due to the late Dragon Boat Festival, revenue from some zongzi products was deferred to confirmation in the third quarter; developing non-rice dumpling products, continued to increase investment in R&D for baked goods, quick-frozen, prepared dishes, etc., and promoted daily-sale products+seasonal products. 2. By channel, chain stores, e-commerce, supermarkets, and distribution achieved revenue of 220 million yuan (+35.9%), 450 million yuan (-6.2%), 250 million yuan (-13.7%), and 8.2 billion yuan (+12%), respectively. Exploring a new chain model with a focus on “One-stop solution to family breakfast dim sum and festive souvenir gifting needs”, as of the end of 2023H1, 6 directly managed festive souvenir shops, 7 franchise festive souvenir shops had been established, and 415 stores had been established through direct management, cooperative management, franchise, and distribution.

Profitability has steadily rebounded. 1. The company's gross margin in the first half of the year was 41.5%, down 6.1 pp from the previous year. Among them, the gross margin for the second quarter was 42.4%, with a steady recovery. 2. In terms of cost ratio, the sales expense ratio was 16.9%, down 6.1 pp from the previous year, and the overall cost amount increased slightly; the management cost rate was 5.4%, up 0.9 pp from the previous year, mainly due to the increase in expenses related to equity incentives; the R&D expense rate was 0.7%, up 0.4 pp from the previous year; and the financial expense ratio was -0.1%, down 0.6 pp from the previous year, mainly due to an increase in interest income. The overall net interest rate was 13.7%, up 0.3 pp from the previous year.

Equity incentives cover a wide range and are conducive to the long-term growth of the company. 1. The company has completed the grant of restricted shares, and granted 2 million restricted shares to 80 directors, senior managers, middle managers and core technical (business) cadres, accounting for about 1.99% of the company's total share capital. This equity incentive plan covers a wide range of areas. It will establish the company's long-term incentive mechanism, fully mobilize the enthusiasm of employees, and facilitate the long-term development of the company. 2. The chairman plans to use his own funds to repurchase the company's shares for subsequent equity incentives or employee stock ownership plans, with a total amount of 60 to 10 million yuan.

Profit forecasts and investment recommendations. It is estimated that the company's net profit for 2023-2025 will be 220 million yuan, 280 million yuan, and 350 million yuan respectively, EPS will be 1.55 yuan, 1.96 yuan, and 2.44 yuan respectively. The corresponding dynamic PE will be 20 times, 16 times, and 12 times, respectively, maintaining the “buy” rating.

Risk warning. Food safety risks, risk of seasonal fluctuations in company operations, risk of brand counterfeiting.