The net profit for 1H24 was 0.09-0.11 billion yuan. The company announced the 1H24 performance forecast, achieving net profit to mother of 0.09-0.11 billion yuan, deducting non-net profit of 0.089-0.109 billion yuan, and turning the year-on-year loss into profit (loss of 0.043 billion yuan in net profit to mother for the same period last year). Based on the median value of the forecast range, 2Q24 achieved net profit of 0.058 billion yuan to mother, +0.063 billion yuan compared to the previous year, which was better than our expectations, mainly due to the rapid recovery due to OEM sales.

Key points of interest

1. Export sales: Channel inventory returned to normal, and the smooth flow of raw materials and exchange rates supported the release of a low performance base.

1) Revenue side: According to the General Administration of Customs, China's pet food export volume/export value from January to May 2024 was 0.125 million tons/3.95 billion yuan, +24%/+22% year-on-year, achieving a relatively rapid recovery under a low base. According to the company's customs statement, the company's overseas ODM business order acquisition and delivery are in a normal state, and the fluctuations in each quarter of 24 are expected to be less than in the previous two years. We expect the company's export OEM business to continue to recover in 24; 2) Profit side: We expect the company's capacity utilization rate to recover year over year as orders resume, boosting the company's profit level. At the same time, the average wholesale price of white striped chicken is -4% year-on-year. The price of raw materials remains reasonably low. The trend of RMB depreciation from the beginning to the present year of 24 supports the continued release of the company's performance.

2. Domestic sales: Independent brands are growing rapidly and continue to strengthen the staple food circuit. We believe that 1) 618 Battle Report: According to the company's 618 war report, the company's total GMV reached 25 million yuan, an increase of 67% over the previous year, ranking second in the Tmall and Jingdong dog snack brand list. The brand positioning of medium and high-end dog food continued to deepen, and it first launched a potential high-end single product for the first time, winning the Douyin Duck Meat Flavored Dog Food Hot List and No. 1 in the Jingdong Dry Dog Food List; 2) Brand Strategy: The Jueyan brand positions “duck meat” and “air dried” into the two major segmented concepts of “duck meat” and “air dried” Food market. Currently, brand potential has been initially formed, and market sales feedback is good It is expected to drive the continued high growth of independent brands. The Haushijia brand focuses on dry cat food and wet food, and is poised to be cost-effective. The share of domestic agency brand business is expected to continue to decline.

3. Production capacity: New Zealand and domestic staple food plants have been put into operation one after another, and the Cambodian plant is expected to contribute to profits. We believe that 1) New Zealand staple food factory: the company built its own high-quality dry pet food production line with an annual output of 0.04 million tons and was officially put into operation in March 24. It is expected to enter the domestic market to absorb production capacity with high-end staple food brands in the medium to long term, continue to increase the staple food layout and contribute to revenue growth; 2) Domestic staple food factory: the new pet food project with an annual output of 0.05 million tons covers various categories of new pet food such as dried food, freeze-dried food, baked food, etc., and is expected to continue to be put into production starting in 24. It's already Put into use to support the production of staple food products for Juehan; 3) Southeast Asian snack factory: The Vietnamese factory achieved high profitability and full production, and the Cambodian factory climbed smoothly, and is expected to gradually contribute to profits starting in 24 years.

Profit forecasting and valuation

Based on the rapid repair of foreign sales foundry, the 2024/25 net profit was raised by 24%/7% to 0.16/0.18 billion yuan, maintaining the industry rating. The current stock price corresponds to 21/19 times P/E in 24/25, and the target price was raised 13% to 17 yuan based on profit forecasts, corresponding to 26/24 times P/E in 2024/25, with 26% upward space.

risks

Raw material prices fluctuate, trade friction risks, exchange rate fluctuations, and production capacity releases fall short of expectations.