Revenue for the second quarter of 2024 decreased 11.96% year over year. In the first half of 2024, the company achieved total operating income of 2.618 billion yuan, a year-on-year decrease of 1.35%; realized net profit of 0.35 billion yuan; and realized net profit without deduction of 0.339 billion yuan, an increase of 14.53% over the previous year. In the second quarter of 2024, the company achieved total operating income of 1.134 billion yuan, a year-on-year decrease of 11.96%; realized net profit of 0.111 billion yuan; and realized net profit deducted from non-mother of 0.103 billion yuan, a decrease of 32.37% over the previous year.

Demand for condiments is weak, and revenue from delicious and fresh food is under pressure. Revenue from delicious fresh food declined slightly in the first half of the year, mainly due to a decrease in revenue from categories such as oyster sauce and cooking wine. The company's revenue in the second quarter of 2024 was 6.1/0.15/0.11/0.13 billion yuan, -22.0%/-15.4%/+29.1%/-30.9% year-on-year, mainly due to weak demand for condiments and the impact of increased competition in the industry. In the second quarter of 2024, the company added 104 distributors to 2,285. Looking at the subregion, the company's revenue in the East/South/Midwest/North in the second quarter of 2024 fell 18.7%/11.0%/25.0%/31.2% year-on-year. The decline in the north was relatively large, mainly due to large changes in internal reforms.

Gross margin improved markedly, and cost investment increased during the reform process. The company's gross profit margin for the second quarter of 2024 was 36.2%, +3.7/-0.9 pct year-on-year, respectively, due mainly to 1) the decline in raw material purchase unit prices; 2) the company actively promoted refined management to promote cost reduction and efficiency. In the second quarter of 2024, the company's sales/management/R&D/finance expense ratio was 14.8%/7.8%/3.7%, an increase of 6.5/1.5/0.2pct over the previous year. The increase in the sales expenses ratio was mainly due to a decrease in revenue scale and an increase in channel investment during the superposition reform process. Taken together, in the second quarter of 2024, the company's net interest rate withheld from mother was 9.1%, a year-on-year decline of 2.8 pcts.

Reform measures continue to advance, and performance is expected to improve quarterly in the second half of the year. 2024 is the beginning of the company's three-year strategic period and a year of momentum. The company has continuously promoted the implementation of reform measures such as organizational structure and assessment mechanisms, and has improved the remuneration and treatment of sales staff to stimulate employee enthusiasm. The company actively summed up and reflected. It is expected that the second half of the year will continue to promote dealer classification management and other tasks. Combined with little pressure on the cost side and a slight decrease in dealer inventory pressure, performance is expected to improve quarterly in the second half of the year.

Risk warning: Prices of raw materials have risen sharply, industry competition has intensified, and the recovery in industry demand falls short of expectations, etc.

Profit forecast and investment advice: Considering that the company's operating pace is still being adjusted, compounded by weak demand for downstream condiments, we lowered our previous profit forecast. The company is expected to achieve total revenue of 5.54/6.08 billion yuan in 2024-2025 (the previous forecast value was 6.09/6.71 billion yuan), and introduced a 2026 revenue forecast of 6.61 billion yuan, which is 7.9%/9.8%/8.6% year-on-year revenue for 2024-2026. The company is expected to achieve net profit of 0.71/0.78 billion yuan in 2024-2025 (the previous forecast value was 0.8/0.94 billion yuan), and introduced a 2026 profit forecast of 0.94 billion yuan. Net profit to mother in 2024-2026 is -57.9%/9.1%/21.3% year-on-year. In summary, the company is expected to achieve an EPS of 0.91/0.99/1.21 yuan in 2024-2026, and the current stock price corresponding to PE is 21.1/19.3/15.9 times, respectively, maintaining a “superior to the market” rating.