Introduction to this report:

The company's 24Q2 revenue and profit improved month-on-month. The growth rate of the main business was boosted, foreign growth was faster than at home, domestic demand has yet to gradually recover, and there is still price competition. Continued reduction in pressure on molasses costs is expected to stabilize profits.

Key points of investment:

Investment advice: Maintain an “Overweight” rating. Maintain the company's 2024-26 EPS forecast at 1.58, 1.79, and 2.13 yuan, and maintain the target price of 38.88 yuan.

The results slightly exceeded expectations. The company's 24H1 revenue was 7.175 billion yuan, +6.86% YoY, net profit to mother 0.691 billion yuan, YoY +3.21%, after deducting non-net profit 0.596 billion yuan, YoY -2.50%; 24Q2 single-quarter revenue of 3.692 billion yuan, +11.30% YoY, net profit of 0.372 billion yuan, YoY +17.26%, after deducting non-net profit of 0.301 billion yuan and +7.32% year-on-year increase in government subsidies The growth rate of profit before deduction is relatively rapid. The company achieved significant month-on-month improvements in revenue and profit growth in 24Q2.

The growth rate of the main business was boosted, and gross margin improved year on year. 24Q2's yeast and deep processing/sugar production/packaging/other business revenue were +12.2%/-40.1%/+46.4%, respectively. The main business is expected to increase the growth rate of yeast-derived categories, improve the low base of baking yeast, decrease in sugar production business, and improve growth quality; domestic/foreign revenue +6.6%/+19.0% year on year; offline/online revenue was +13.0%/+7.6%, respectively. Foreign markets strengthened development and maintained a relatively rapid growth rate. 24Q2 gross margin was +0.3 pct to 23.9% year on year. It is expected to contribute to the reduction in the cost of raw materials such as molasses and the improvement of the business structure, but price competition still has an impact. 24Q2 sales/management/R&D/finance expense ratios were +0.6/-0.6/+0.6pct year on year, respectively. Thanks to government subsidies, net interest rate to mother was +0.5pct to 10.1% year over year, and deducted non-net interest rate -0.3 pct to 8.2% year over year.

Cost pressure is expected to continue to ease, and domestic demand has yet to gradually recover. On the cost side, there is a high probability that the overall downward trend in the company's domestic and foreign molasses costs will continue. The medium- to long-term effects of hydrolyzed sugar on cost fluctuations are expected to be evident. At the same time, it is expected that depreciation costs will gradually converge after 24 years, catalyzing an improvement in profit margins. The phased increase in shipping fees and exchange rate fluctuations in foreign business may have an impact on profit expectations, but the revenue side continues to grow in pioneering contributions, and the decline in scale will promote profit improvement. There is still price competition for major domestic products such as baking yeast in the short term, and demand has yet to gradually recover.

Risk warning: macroeconomic fluctuations, increased market competition, rising raw materials and fixed costs.