Incident: The company released a performance forecast. It is expected that 24H1 will achieve operating income of 1.179 billion yuan, an increase of 0.72% year on year; net profit to mother - 0.029 billion yuan, a year-on-year reduction of 0.015 billion yuan. Among them, 24Q2 achieved operating income of 0.454 billion yuan, or -7.61% year-on-year; net profit to mother of -0.054 billion yuan, an increase of 4.32 million yuan year-on-year.

Brewing is mainly based on digesting stocks, and the ready-to-drink sector's fruit tea strategy is beginning to bear fruit. By sector, the brewing sector has declined a lot, mainly due to the company's inventory digestion; revenue from the ready-to-drink sector is expected to remain flat, of which 1) juice tea is expected to grow well, and the strategy is beginning to bear fruit; 2) Frozen lemon tea is under pressure, mainly due to channel restructuring. The share of e-commerce sales has declined a lot, which has had an impact on the unit price of frozen lemon tea. 3) Furthermore, the company's product focus was adjusted this year. Dahongpao milk tea has not yet focused on sales, and is expected to be missing from the previous year. In terms of profit, losses increased mainly due to off-season brewing drag.

24Q2 performance was under pressure, and the ready-to-drink sector lagged behind in volume. The main reason is that before the beginning of the peak season, the company carried out a reorganization of product strategy and channel priorities, such as clarifying MECO's product adjustments and marketing priorities, adjusting product sales points for frozen lemon tea, development priorities for new scenarios, and detailed adjustments to the team structure, etc., focusing on long-term development. Along with the ready-to-drink movement, once the direction is determined, the tactical level can also be targeted.

No adjustments will be made to ready-to-drink full-year revenue forecasts for the time being.

24Q3 has entered an important testing stage of the company's strategy, and results are yet to be seen. On the one hand, the ready-to-drink season verifies the viability of the new strategy; on the other hand, brewing is expected to usher in an upgrade, bringing in new volume. We believe that in a context where the external environment is under pressure, the company will maintain its strategic strength, accumulate potential energy for subsequent expansion, and wait for the results of the company's reforms and the secondary curve to show results.

Investment advice: The company is expected to achieve operating income of 4.139/4.76/5.481 billion yuan in 2024-2026, up 14.18%/15.00%/15.15% year on year; achieve net profit of 0.333/0.42/0.531 billion yuan, up 18.97%/26.00%/26.31% year on year; achieve EPS of 0.81/1.02/1.29 yuan, corresponding PE of 15/12/10x, maintaining the “increase” rating.

Risk warning: food safety risks, fluctuating raw material prices, seasonal risk fluctuations.