From a difficult situation to a new life, reforms are on the way. After the 23H2 equity dispute was settled, corporate governance continued to be optimized. Thanks to the concerted efforts of the new management, a beautiful blueprint for the high-quality development of the new kitchen state is slowly unfolding. We believe that changes within the company have actually taken place, and the operation has clearly improved, and it is expected that it will return to the high growth channel in the future. We are also conducting in-depth analysis and discussions on current market disputes:

The four major concerns of the market: the path and pace of Zhonghu's reform, the source of subsequent growth, the characteristics and style of play of the new management, and the ability to cross borders from beer to condiments:

The third phase of Zhonghu revival: internal reform, marketing efforts to merger and acquisition collaboration. Currently, we are in transition from the first stage to the second stage, gradually moving towards a period of reform testing and acceleration of performance. Many consumer products have been revisited. The reform has gone through three stages: internal management reform, execution of external strategies, and a positive internal and external cycle. Looking at the comparison, Zhongju is currently transitioning from the first stage to the second stage, that is, internal reforms (management, organizational structure, and salary system adjustments) are nearing completion, and external strategies (dealer management, promotion optimization, restaurant channel development) are being carried out one after another, gradually moving towards a period of reform testing and acceleration of performance, focusing on report implementation, channels and internal feedback from within the company. Starting in 25 years, the operation is expected to move towards a positive cycle, revenue will further accelerate, and profits will improve markedly.

Incremental potential: The industry has structural highlights, and the potential volume of China Torch is estimated to be 80+ billion. From an industry perspective, soy sauce is expected to maintain a low single-digit level in the future. Increased share and structural upgrades will be the two main lines. Judging from China Torch, the current revenue distribution is uneven, and there is more room for incremental growth in the national layout, weak channels, and shortfall categories. According to regional estimates, the company's nationwide expansion still has a lot of potential to be tapped. There is still at least 3+ billion incremental potential. There is no need to worry too soon about the ceiling reaching the top.

Characteristics of the new team: Stronger than playing high, revitalizing the organization. The new management has been in office for nearly half a year. Through continuous tracking and sorting out reform ideas, we have found that: the first is to set a high pace and sign a military warrant at the same time, and have the confidence, determination and responsibility for reform; second, they emphasize putting people first, reshaping corporate culture, focusing on enhancing organizational vitality and development momentum, and actively promoting market-based implementation; third, they are familiar with management change and marketing first, and use channel change as the key gripper for reform; fourth, they have rich operating experience, introducing hierarchical product management and large product thinking, and emphasizing the importance of new product research and development; 5. Overall benefits, consolidating the efficiency of the enterprise supply chain in all aspects .

Cross-border competencies: Condiments need to be refined more carefully, and we look forward to introducing advanced management experience. Although both are traditional FMCG products, there are differences in specific business attributes. The first difference is that on the demand side, condiments are purchased more frequently, and the consumer population and scenarios are narrower, but the repurchase rate is higher, and the second is on the channel side, where condiments are less difficult to manage but the intangible barriers are higher. At the same time, they are mostly product line extensions, and demand differences are greater. At present, the new management has a clear understanding of condiments. With the support of China Resources and advanced company operation and channel management experience in the beer industry, the core sticking point of Zhonghu is expected to be resolved, and it is also expected that advanced beer management will be integrated into condiment operations, and even release stronger development momentum.

Business suggestions: seize the pace, explore efficiency, and extend collaboration. First of all, in terms of grasping the pace, reforms are not achieved overnight; corrections and adjustments in the middle details are unavoidable. On the basis of grasping the general direction of reform, it is also possible to grasp the pace of reform, maintain patience and confidence, and gradually accelerate step by step. Second, in terms of operational efficiency and organizational ability, improving employee efficiency in the future will be an important source of profit improvement, further testing management ability and strategy implementation. It is recommended to do a good job of exploring potential efficiency, enhance organizational capabilities through internal team training, experience sharing, etc., shape a new corporate culture, and enhance overall combat effectiveness. Finally, in mergers and acquisitions, companies can fully consider how to do a good job of category, brand, or channel collaboration after being incorporated into the Chubang system. It is recommended that priority be given to mergers and acquisitions to make up for shortcomings such as food channels, vinegar sauce, oyster sauce, or multiple categories. Mergers and acquisitions of external companies can also be used to improve the national layout.

Investment advice: Target for scarce reform potential, three-year strategic recommendation, maintaining a “strong” rating. Currently, the company's reform activities are progressing steadily. In 24 years, implementing incentive assessments, focusing on breakthroughs in single products, increasing catering development, and channel optimization strategies, etc., it is expected that the dividends of the reform will initially be realized and the vigor of the reform will begin to be conveyed. Looking ahead, as report data verification and operations enter a positive cycle, the company's reform is expected to enter the third stage. Channel and market momentum are superimposed on the growth potential released by the reform, and operations will continue to accelerate, eventually moving towards the goal of “rebuilding a new kitchen state.” Considering potential real estate disposal revenue, and not considering mergers and acquisitions contributions, we maintained the 24-26 EPS forecast of 1.04 yuan/1.24/ 1.65 yuan, corresponding to the P/E valuation of 26/22/16 times. Of these, net profit returned to the mother for 24/25 was about 7.9/1.03 billion after excluding incentive fees and land income, 30 times PE after giving back the incentive fee, and the corresponding target market value/target price after adding back real estate was about 27 billion/34.5 yuan respectively, maintaining a “strong” rating. At the same time, based on the three-year reform dimension, the company's strategy was gradually implemented and the company became first-class in the industry. In addition, considering real estate valuations and potential mergers and acquisitions proceeds (note that potential mergers and acquisitions capital expenses are not considered here), a comprehensive 3-year target market value of 40 billion dollars was given.

Risk warning: Downstream demand is sluggish; market competition is intensifying; initial cost investment in the early stages of reform; nationalization expansion, catering channel development, etc. fall short of expectations; progress in the divestment of non-main businesses falls short of expectations; food safety issues, etc.