Matters:

The company released its 2024 semi-annual report. In 24, H1 achieved total operating income of 4.613 billion yuan, -17.56%; realized net profit of 0.891 billion yuan, or -42.34% year on year; net profit after deducting non-return to mother was 0.831 billion yuan, -42.83% year on year; and net sales margin of 19.08%, -8.91 pcts year on year. The Q2 Company achieved total operating income of 1.967 billion yuan, or -20.93%; realized net profit of 0.164 billion yuan, or -68.12%; net profit without return to mother was 0.122 billion yuan, -73.48% year on year; and net sales margin of 8.19%, -12.57 pcts year on year.

Commentary:

Weak demand and increased competition compounded the high base over the same period, putting pressure on revenue side performance. Weak consumption combined with a high base over the same period. 24Q2 revenue fell 20.93% year over year to 1.967 billion yuan. Combined with performance exchanges, offline revenue fell 15.82% in line with the industry, while online fell 20.54% to outperform the industry. The main reason was weak performance of traditional e-commerce, compounding that corporate marketing strategies paid more attention to brand exposure and reduced overinvestment on platforms such as Douyin. By brand, 24Q2's main brand/Jianliduo/Life-Space domestic products/LSG's total overseas business revenue was -22.48%/-33.74%/-17.43%/-4.44% to 10.9/0.218/0.09/0.258 billion yuan, respectively. The overall domestic pressure was high. The overall domestic pressure was high. The decline in Jianli was clearly mainly due to the iteration of large Q2 products disrupting the shipping pace. LSG's overseas base is relatively stable.

The combined scale effect of high-fee investments continued to weaken, net interest rates dropped sharply, and performance fell short of expectations. In terms of gross margin, due to online price competition, weakening scale effects, and rising fish oil prices, 24Q2 gross margin also decreased by 3.6 pcts to 66.8%. On the cost side, under a strong brand strategy, the company continued to invest in variety show titles and the absolute value of H1 advertising expenses. Combined with changes in e-commerce platform structure and increased payment traffic, the cost efficiency declined. 24H1/Q2 sales expenses increased by 6.8/7.9 pcts, respectively, which is a core factor dragging down the profit level. Furthermore, due to the decline in revenue and the calculation of equity incentive expenses, the 24Q2 management fee ratio also increased 2.4 cpts to 6.5%. Overall, 24Q2's net profit margin to mother decreased by 12.37 pcts to 8.36%; net profit to mother decreased by -68.12% to 0.164 billion yuan.

H2 has begun to adjust strategies and product iterations, and short-term operations are expected to remain under pressure. Looking ahead to the second half of the year, in terms of offline channels, the company is expected to promote the iterative upgrading of protein powder, and is expected to continue Q3 pressure and ease in Q4 during the iteration process; on the online side, the cost investment model will be adjusted and optimized to further balance long-term brand building and short-term performance implementation; at the same time, the plan is to incorporate some small-volume single products into the core brand to improve operational efficiency. The company's adjustment attitude is positive, and the results have yet to be tested. Considering weak consumption power and continued competition in the industry, we expect that short-term operations will still be under some pressure during the year. In the medium to long term, as consumption power recovers and industry competition is standardized, leading advantages are expected to gradually emerge.

Investment advice: Continue under pressure in the short term, observe adjustments and improvements. H2 will begin to adjust strategies and iterate products, but considering the uncertainty in the adjustment process, weak external demand, and continued intense competition, it is expected that short-term operating pressure will continue, and adjustments will still need to be observed. Due to the company's sales pressure and high brand cost investment, which greatly dragged down profits, we lowered the 24-26 EPS forecast to 0.68/0.82/0.93 yuan (the original forecast was 1.03/1.14/1.25 yuan), the corresponding PE was reduced by 18/15/13 times, and the target price was lowered to 13.5 yuan, corresponding to PE 20X in 24, maintaining the “recommended” rating.

Risk warning: industry competition intensifies, sales fall short of expectations, tightening regulatory policies, food safety risks, etc.