Incident: The company disclosed the 2024 interim results announcement, which achieved total operating income of 15.64 billion yuan (YOY 3.5%), achieved main revenue of 15.449 billion yuan (YOY 6.0%), and achieved net profit of 0.966 billion yuan (YOY 10.16%) to mother.

Revenue grew steadily in the first half of the year, and the recovery in gross margin drove good profit growth. Looking at the first half of '24 as a whole, on the gross profit side, the company's main business revenue increased 6.0% year on year. Due to falling prices of some raw materials, improved production capacity efficiency, and product structure optimization, gross margin increased 2.7 pct to 33.8% year on year, and gross profit increased 15.3% year on year. On the expense side, the company's expense ratio remained stable and increased by 0.06 pct year on year (including sales expense ratio -0.01pct and management expense ratio -0.18pct), and the income tax rate was 27.02% (-0.27pct year on year). As a result, the net profit margin to mother increased 0.2 pct year over year, corresponding to a 10.2% year-on-year increase in net profit to mother.

Beverage business: Tea drinks performed well, and Haizhiyan continued to increase growth momentum. In the first half of 2024, the company concentrated on market channels, covering multiple consumption scenarios. In addition to traditional ready-to-drink scenarios, it continued to develop such as catering scenarios, family scenes, gift scenes, group buying scenarios, etc.; promoted the expansion and layout of high-performing terminal sales points, and continued to increase freezing to enable digitalization. 24H1's beverage business achieved 10.024 billion yuan (YOY 8.3%, and CAGR = 10.2% during the 22H1-24H1 period), and the beverage business gross margin was +2.7 pct year over year. In addition, the net profit margin of the beverage division was +1.5pct to 12.5% year over year.

By beverage category, among them: (1) The tea and beverage business achieved revenue of 4.647 billion yuan (YOY 11.8%) and maintained double-digit revenue growth over the past 3 years. The company lays out a low-sugar and sugar-free dual product line to meet the new trend of healthy consumption, and launched a new sugar-free product “Chunfu Green Tea” with a retail price of 4 yuan.

(2) The juice business achieved revenue of 1.79 billion yuan (YOY 8.2%), mainly due to the rapid growth of Haizhiyan and the development of the juice gift box scenario; Haizhiyan actively lays out the electrolyte beverage market, optimizes products for different drinking scenarios, and increases growth momentum.

(3) The milk tea business achieved 3.284 billion yuan (YOY 3.3%). “Unify Assam Milk Tea” firmly implements a steady business strategy, continuously expands product drinking scenarios with strong brand influence, and has achieved remarkable results in developing a sinking market pipeline. Among them, revenue from large packages of original milk tea and small but beautiful products grew rapidly year over year.

We believe that as we enter the peak beverage consumption season and diversified channel development continues to add new contributions, we are optimistic that the beverage business will continue to accelerate in the second half of the year.

Food business: The first half of the year was stable overall, and the profitability of the segment increased significantly. 24H1 adheres to product quality, continues to be empowered in terms of product strength, greatly enhances product strength, and continuously innovates and iterates to meet the personalized and diverse needs of consumers. The food business achieved revenue of 4.947 billion yuan (YOY 0.9%). Furthermore, benefiting from declining prices such as palm oil, etc., the gross margin of the company's food business was +2.5 pct year on year, thus driving the net profit margin of the food division +4.1 pct year over year.

(1) The company “Tang Da Ren” resolutely maintains market price stability and product freshness, and enhances consumers' purchasing and use experience. (2) The company's “Unify Laotan Sauerkraut Beef Noodle” used high-potential media sales and accumulated brand assets to consolidate the first place in the category, and achieved double-digit revenue growth in the first half of the year. (3) “Unify Braised Beef Noodles” focuses on product strength, achieves breakthrough innovation, and completes new upgrades.

We believe that as the product strength and sense of value in the company's food business continue to improve, it is expected that it will continue to maintain a steady growth trend in the future.

Profit forecasting and investment advice. We estimate that in 2024-2026, the company's total revenue will be 30.714/32.277/33.739 billion yuan, the main business revenue will be 30.485/32.048/33.511 billion yuan, the net profit to mother will be 1.864/2.062/2.244 billion yuan, and the corresponding EPS will be 0.43/0.48/0.52 yuan/share, respectively. Referring to the PE valuation of comparable companies, we gave the company a PE (2024E) valuation range of 16-20 times, corresponding to a value range of 6.88-8.60 yuan/share, based on the HKD to RMB 0.90 exchange rate, corresponding to a reasonable value range of 7.64-9.56 HKD/share, and continued to give a “superior to the market” rating.

Risk warning. (1) Declining market demand, (2) product promotion falling short of expectations, (3) fluctuating raw material prices, and (4) food safety issues.