occurrences

The company released its 2024 semi-annual report, and the interim report performance is above the center of the forecast range. The first half of 2024 achieved total revenue/operating revenue/net profit attributable to mothers/net profit after deducting non-net profit of 24.59/2.459/0.319/0.273 billion yuan, or 29.84%/30.01%/17.96% year-on-year.

The company achieved total revenue/operating revenue/net profit attributable to mothers/net profit after deducting non-net profit of 12.36/1.236/0.16/0.135 billion yuan in Q2, 23.44%/19.11%/1.58% year-on-year.

Key points of investment

The driving effect of the new channel was remarkable, and the Big Devil's Vegetarian and Quail Egg categories performed well. By channel, even above last year's high base, e-commerce channels achieved significant growth in the first half of this year. The Douyin platform performed particularly well. At the same time, it continued to deepen cooperation with leading snack brands, and the number of SKUs continued to increase. 24H1 direct supermarket channel/distribution (including new retail channels and other channels) channels/e-commerce channels achieved revenue of 0.108 billion yuan/1.77 billion yuan/0.58 billion yuan, accounting for 4.41%/72%/23.59% of revenue, 43.59%/+35.04%/+48.4% year-on-year. By product, quail eggs, dried fruit nuts, and konjac patches have achieved rapid development. The company took the initiative to make price adjustments and introduced egg king in mass sales channels. At the same time, it entered Sam's Channel in June, and initial monthly sales feedback is positive; bagged dried mangoes have entered the mass sales channel, driving rapid growth in the dried fruit and nut category. 24H1 spicy brine snacks/casual baking/deep-sea snacks/eggs/potato snacks/dried nuts/ konjac jelly pudding/ others achieved revenue of 8.98/3.42/3.24/2.39/2.21/0.21/0.183/0.043 billion yuan respectively, up 25.81%/12.60%/11.83%/150.54%/39.34%/95.98%/44.01%/-56.95%.

By region, Central China/Southwest China/Southwest China/East/Northeast China achieved revenue of 8.52/3.33/0.326/0.314/0.054 billion yuan respectively, with year-on-year growth

22.5%/17.85%/21.41%/39.21%/74.51%. The number of distributors of the company in Central China/East China/Southwest/ South China/ Northwestern/ North China/ Northeast China at the end of June 2024 was 799/742/590/436/208/297/108, compared with -7.52%/-8.05%/-2.32%/+5.31%/-3.26%/+1.02%/-7.69%, respectively. The company actively reduced the number of distributors to move closer to strategic cooperative dealers and pay more attention to the quality of distribution channel development.

Q2 gross margin increased month-on-month (because 23Q2 gross margin was a full-year high and year-on-year decline under a high base), considering that brand development required concentrated investment in market expenses, but net interest rates remained stable. In the first half of 2024, the company's gross margin/net profit margin was 32.53%/12.99%, -2.81/0.02pct, respectively; the sales/management/ R&D/finance expense ratios were 13.27%/4.51%/1.56%/0.28%, respectively, 0.71/0.27/-0.84/-0.13pct, respectively.

In 24Q2, the company's gross margin/net profit margin was 32.96%/12.93%, -3.08/-0.47pct, respectively. The year-on-year decline in gross margin was mainly due to channel restructuring. Non-net profit after deducting share payment fees was about 0.155 billion (24Q2 share payment fee 25.05 million), an increase of 11% year over year. The operating profit margin after excluding share payments was 12.5%, down about 1.3 pcts year on year; the sales/management/ R&D/finance expense ratios were respectively 13.53%/4.79%/1.82%/0.25%, compared with 2.05/0.67/-0.28/-0.21pct, respectively. Q2 companies strategically invested in product promotion expenses during the off-season, leading to an increase in sales expenses.

The company's positioning is gradually changing from a channel type to a product type. Expectations remain unchanged throughout the year, and it is expected that it will continue to enjoy channel dividends in the long run. In terms of products, the company continues to focus on creating large single products. Currently, quail eggs and big devil have leading performance in the market. At the same time, the two categories of quail eggs and konjac have strong supply chain advantages and continue to improve the product quality/price ratio through upstream extensions, so the company can have more room to develop on the basis of guaranteeing profit margins from existing channels. In the future, the company will create a popular product matrix by launching 1-2 large products every year. In terms of channels, e-commerce and mass sales still have a lot of room for development. Currently, the Douyin channel has spilled over brand power, and the second half of the year will continue to cover multiple platforms with the idea of extremely cost-effective products and high-margin products. The company and Ming Ming are busy and have reached a deep strategic cooperation model. There is still plenty of room for product expansion and continuous improvement of penetration in the future. In addition, the company will adjust the product structure for different regional markets and use the sinking market as a gripper for bulk channel development. On the profit side, gross margin is expected to remain stable. Investment in product promotion expenses, exhibition expenses, etc. are relatively concentrated in the second quarter. There is room for a decline in sales expenses as the peak season approaches, and the net interest rate outlook is positive in the long term.

Profit Forecasts and Investment Ratings

According to the interim report, we slightly adjusted our profit forecast, maintaining the 2024-2026 revenue forecast at 5.223/6.528/7.911 billion yuan, respectively, +26.91%/+24.99%/+21.19%. The net profit forecast for 2024-2026 is 0.644/0.814/1.008 billion yuan (the original forecast value was 0.635/0.831/1.008 billion yuan), compared to +27.43%/+26.29% /+ 23.84% EPS for the next three years will be 2.35/2.97/3.67 yuan respectively, corresponding to the current PE price being 16/13/10 times, maintaining a “buy” rating.

Risk warning:

Market competition increases risk; fluctuating raw material prices; food safety risks.