The company released a semi-annual performance forecast for 2024:24H1 net profit is expected to be between 0.09-0.11 billion yuan, and net profit after deducting non-return to mother is 0.089-0.109 billion yuan, all turning a loss into a profit compared to 23H1. Among them, 24Q2 net profit to mother is 0.048-0.068 billion yuan, which also significantly reverses losses year-on-year.

Overseas order recovery, rapid release of foundry production capacity in Southeast Asia: As overseas warehouses continue to be removed, the company's revenue and profit gradually recovered from 23Q1, and began to resume positive year-on-year growth in 23Q4. We believe that 24Q2 trend continued and became the main reason for the company to achieve a significant loss. At the same time, the company itself made full use of years of overseas manufacturing experience to actively expand new customers, and ODM order shipments increased dramatically. Currently, production capacity in Vietnam is operating at full capacity. Cambodia's total production capacity of 0.0112 million tons is also being released rapidly.

Local independent brands have maintained rapid growth: the company's own brands have successfully expanded domestically. First, they have successfully achieved their semi-annual phased targets, and the revenue scale continues to grow rapidly. Second, while the revenue scale of the original main categories maintained rapid growth, the new staple foods launched were quickly accepted by the market. The Jueyan brand achieved a cumulative good performance of 25 millionGMV on the 618 Douyin, JD, and Tmall platforms, up 67% from 618 last year. Dried meat products ranked in the top 1 dog food list many times. Native dried meat products also ranked in the top 1 food in Douyin and Jingdong They are in the top 1 of the most popular staple foods list and the top 1 dried dog food list, respectively. In the future, as the company reduces costs and increases efficiency and production capacity continues to be released, the company's profitability is expected to continue to improve.

Investment advice: The company's overseas orders have basically recovered, and with future channel & customer expansion, capacity expansion & capacity utilization rates continue to increase, profitability is expected to further increase; local independent brands rely on large single product strategies and continue to promote innovation, and have achieved good performance in dog snacks, canned food, and dried staple food tracks. We estimate that Q2 overseas business revenue is about 0.384-0.408 billion yuan, profit is 0.065-0.07 billion yuan, and domestic Q2 revenue is between 0.072-0.096 billion yuan but has not yet reached break-even; we forecast that the company's operating income for 2024-2026 will be 1.9/2.3/2.8 billion yuan, respectively, and net profit to mother for the next three years will be 0.169/0.208/0.248 billion yuan, corresponding to EPS (diluted) 0.68/0.84/1.00 yuan. The current stock price corresponds to PE of 20/16/14 times, maintaining a “buy” rating.

Risk warning: the increase in domestic penetration rate falls short of expectations; weak overseas demand; material costs and expenses have increased higher than expected; competition has increased dramatically; export trade policy risks, etc.