Incident: The company achieved revenue of 7.175 billion yuan in 2024H1, an increase of 6.86% year on year; achieved net profit of 0.691 billion yuan, up 3.21% year on year; realized net profit of 0.596 billion yuan after deduction, an increase of -2.50% year on year. Among them, 2024Q2 achieved revenue of 3.692 billion yuan, up 11.30% year on year; realized net profit of 0.372 billion yuan, up 17.26% year on year; realized net profit of 0.301 billion yuan after deduction, up 7.32% year on year.

The main yeast business accelerated month-on-month, and domestic growth picked up. By product, 2024Q2 yeast and deep-processed products achieved revenue of 2.67 billion yuan, a year-on-year increase of 12.24%, a significant increase of 5.37% over Q1; in the first half of the year, yeast and deep-processed products achieved revenue of 5.12 billion yuan, an increase of 8.85% over the previous year. Baked pasta leverages the advantages of new strain upgrades, adopts “one factory, one policy” to deal with competition, promote product portfolio application, YE food flavoring promotes segmented industry promotion, microbial nutrition strengthens the development and maintenance of large industrial users, animal nutrition promotes secondary development of large users, brewing and bioenergy increases the development of rural winemaking markets, and plant nutrition implements channel flattening strategies to promote steady growth in sales of leading products in various business units.

Revenue from sugar, packaging, and other main businesses in the second quarter was 0.19, 0.095, and 0.71 billion yuan, respectively, up -40.07%, -17.05%, and 46.42% year-on-year respectively. By region, 2024Q2 achieved revenue of 2.211 and 1.454 billion yuan at home and abroad, respectively, with year-on-year increases of 6.64% and 19.01%, respectively. Domestic growth recovered to -4.52% in Q1, demand continued to pick up, and overseas growth remained high.

Gross margin improved year on year, and government subsidy contributions increased. 2024Q2's gross margin increased by 0.27 pct year-on-year to 23.92%, mainly benefiting from the release of cost dividends and the decline in the share of sugar production businesses with low gross margins. Sales, management, R&D, and finance expense ratios for the second quarter were +0.56, -0.33, -0.57, and +0.63 pcts year-on-year to 5.49%, 3.13%, 4.09%, and -0.14%, respectively. Other 2024Q2 revenue increased by 0.054 billion yuan year-on-year to 0.089 billion yuan, mainly due to an increase in government subsidies. Taken together, 2024Q2's net interest rate to mother increased 0.54 pcts year-on-year to 10.08%.

Profit forecast: As a domestic yeast leader, the company continues to focus on its main business, and its market share continues to increase. At the same time, overseas business is rapidly expanding, and revenue is expected to maintain steady growth. Currently, the cost of molasses is high. As hydrolyzed sugar efficiency increases, the pressure on raw material costs will be significantly calmed down, and it is expected that molasses prices will fall, leading to improved profitability. According to the company's interim report and equity incentive targets, considering the decline in the sugar business, we lowered our profit forecast. The company's revenue for 2024-2026 was 14.983, 16.658, and 18.461 billion yuan (original values were 153.55, 172.23, 191.75), and net profit to mother was 1.366, 1.564, and 1.793 billion yuan, respectively (original values were 13.76, 16.10, 18.37), EPS was 1.57, 1.80, and 2.06 yuan, respectively. The corresponding PE is 18.8 times, 16.4 times, and 14.3 times, maintaining the “buy” rating.

Risk warning events: the global economic growth rate is slowing; the risk of overseas market development falling short of expectations; food safety risks; molasses price fluctuations; the progress of hydrolyzed sugar production falls short of expectations; and the risk that research information is not updated in a timely manner.