Incident: The company released its 2024 mid-year report. 24H1 achieved operating income of 7.175 billion yuan, a year-on-year increase of 6.9%, and net profit to mother of 0.69 billion yuan, an increase of 3.2% year-on-year, after deducting non-return net profit of 0.596 billion yuan, a year-on-year decrease of 2.5%. It is estimated that in a single quarter of 24Q2, the company achieved operating income of 3.69 billion yuan, a year-on-year increase of 11.3%, net profit of 0.37 billion yuan, a year-on-year increase of 17.7%, net profit after deducting non-attributable net profit of 0.3 billion, an increase of 7.3% over the previous year. Revenue slightly exceeded expectations, and profit exceeded expectations.

Investment Rating and Valuation: Maintaining the profit forecast, net profit for 2024-26 is expected to be 1.37 billion, 1.57 billion, and 1.86 billion, with year-on-year increases of 8%, 14.5%, and 18.4%, respectively. The latest stock price corresponding to 2024-26 PE is 19x, 16x, and 14x, respectively. In the long run, as downstream yeast derivatives expand, overseas penetration continues, and production capacity continues to expand, we believe that the company's yeast industry's global position is expected to further improve, and the growth potential will be steadily released, and the holding rating will be maintained.

Revenue improved month-on-month in 24Q2, and overseas growth remained high. According to the 24-year report, in terms of categories, 24Q2's yeast and deep-processing/sugar/packaging/ other series achieved revenue of 26.7/0.19/0.095/0.71 billion, respectively, +12.2%/-40%/-17%/+46%, respectively. In terms of yeast and deep processing, domestic baking yeast revenue is expected to improve sequentially in 24Q2. The revenue of 24H1 small-packaged yeast is expected to resume positive growth, while 24Q2 revenue from yeast extract and other derivatives is expected to maintain double-digit growth, 2) system The decline in sugar revenue in 24Q2 is mainly due to the decline in trade business and the gradual divestment of trade sugar. 3) Other categories are expected to benefit from the extension of the downstream yeast industry chain and the promotion of new growth points for food ingredients such as yeast protein. Looking at the subregions, 24Q2 domestic and overseas markets achieved revenue of 2.21 billion and 1.45 billion, respectively, +6.6% and +19%, respectively. Among them, 1) 24Q2 domestic performance improved month-on-month compared to 24Q1, mainly due to inventory removal of leading products, channel inventory replenishment, and product price adjustments, and customer return; 2) foreign business mainly benefited from high growth in the Middle East, Africa, Europe and the Asia-Pacific region. Looking ahead to 24H2, leading domestic products are expected to continue to recover under price adjustments; overseas factories in Russia and Egypt will expand production capacity and be put into operation, which is expected to support the rapid development of overseas business and further benefit from the dividends of low-cost overseas raw materials.

24Q2 gross margin increased slightly year over year. According to the 24-year report, the 24Q2 company achieved a gross profit margin of 23.9%, an increase of 0.3 pct over the previous year. Although the company adjusted prices for leading products, raw material costs showed a downward trend globally, while the proportion of hydrolyzed sugar substitution increased, supporting a slight year-on-year increase in gross margin. In terms of expense ratios, 24Q2's sales/management/R&D/finance expense ratios were 5.5/3.1/4.1/ -0.1%, respectively, compared to +0.6/-0.6/+0.6pct, respectively, of which 1) of sales expenses, 24H1 sales staff remuneration was 0.16 billion, an increase of about 24.5% year-on-year, 2) the management expense ratio was mainly due to a decrease in share payments, and 3) the financial expense ratio was mainly due to an increase in interest expenses. In addition, the difference between 24Q2 company's net profit and net profit not attributable to mother is mainly due to increased government subsidies related to earnings. In summary, the company's net interest rate for 24Q2 was 10.1%, +0.5pct year on year, and 8.2% net profit margin after deduction of non-return to mother was 8.2%, -0.3 pct year on year. Looking ahead to 24H2, domestic and foreign molasses procurement costs have been on a downward trend since this year. Hydrolyzed sugar technology and application have been continuously improved, and pressure on the raw material side is expected to ease.

The catalyst for rising stock prices: price increases for major products and falling molasses prices

Core hypothetical risk: large exchange rate fluctuations, higher molasses prices than expected