24H1 performance slightly exceeded market expectations. The company 24H1 achieved revenue of 15.45 billion yuan, +6.0% year on year, net profit to mother of 0.966 billion yuan, +10.2% YoY, after deducting non-net profit +57% YoY (23H1 base excludes one-time revenue of 0.26 billion yuan after tax from the Hefei factory sale).

Among them, 24Q2 deducted 0.51 billion yuan of non-net profit, +31% year-on-year. 24H1 performance slightly exceeded market expectations.

Drinks performed well, and food grew steadily. 24H1 beverage revenue increased 8.3% year over year, with Q1 showing double digit growth, while Q2 beverage revenue decelerated month-on-month. By category, revenue from 24H1 tea drinks/juice/milk tea increased by 11.8%/8.2%/3.3%, respectively. Tea drinks performed well, mainly due to the outdoor consumption trend, sweetened tea continued to grow rapidly, and the new sugar-free tea Chunfu green tea had excellent sales and sales conditions; juice increased significantly, driven by double-digit revenue growth in Haiji. 24H1's food revenue also increased by 0.9%. Among them, instant noodles also increased 1.9%, outperforming the industry. Jiahuang and Laotan sauerkraut noodles increased by the same double digits, braised beef noodles remained flat, and Tang Dazen declined slightly.

The gross margin performance slightly exceeded expectations, and the logic of increasing net profit margins continued to be fulfilled. 1H24's gross margin increased 2.7 pct to 33.8% year on year, mainly due to reduced costs, increased capacity utilization, and reduced promotions. Youshang raised prices for various categories, which continued to contribute to unifying market share, boosting sales, increasing capacity utilization, and reducing promotion. We expect gross margin to improve year-on-year in the second half of the year. By category, the gross margin of instant noodles/beverages was +2.5pct/+2.7pct, respectively. On the cost side, 24H1's sales expenses rate was basically the same year on year, and the cost investment was in line with the company's expectations; the management rate was slightly optimized due to the direct sales model in some regions, personnel costs were slightly optimized.

The dividend rate is attractive, and high dividends still support the stock price. Based on the weak macro consumption environment, we recommend deterministic high-dividend companies. The company has maintained a percentage dividend for many years, and the cash dividend ratio for 2020-2023 is 100%/120%/110%. We expect the company's net profit for 24 years to be 1.78 billion yuan (up 6.6% year over year). Assuming that the company continues to maintain a historical dividend rate of 100%, the corresponding dividend rate will reach 7.2% based on the current market value, and its dividend value is very impressive.

Investment recommendations and profit forecasts. The company's revenue for 2024-2026 is expected to be 30.63/32.45/34.19 billion yuan, up 7.1%/6.0%/5.3% year on year; net profit for 2023-2025 is expected to be 1.78/1.96/2.17 billion yuan, corresponding EPS is 0.41/0.45/0.50 yuan, respectively, up 6.6%/10.5%/10.6% year on year (same as previous value, profit forecast is not adjusted). Referring to comparable company valuation levels, and considering the future environment of interest rate cuts in overseas markets, we believe that a unified dividend rate of 5% or more is highly attractive. The company was given 20xPE in 2024 (unchanged), and the corresponding target price was HK$8.9 (unchanged), maintaining the “better than the market” rating.

Risk warning: Increased industry competition, fluctuating raw material prices, food safety risks.