Delicious Fresh's Q2 revenue/net profit declined by 12.1%/34.4% year on year. Although nationwide investment promotion continues to advance, due to pressure from external demand, increased competition in the industry, and company reforms still need to be adjusted. The Q2 condiment business is under pressure in stages, and at the same time, increased spending is dragging down profits. The company actively adjusted the problems encountered in optimization. Since July, dealer inventory has declined, and growth has resumed on the shipping side. H2 performance is expected to improve sequentially. Without considering this year's land acquisition compensation revenue, we lowered our 24-25 EPS forecast to 0.90 and 1.13 yuan. We expect that Delicious Fresh will achieve a net profit of 0.7 billion yuan to the mother in 24, giving 25 times PE, plus the company's land value of 5 billion yuan and a target market value of 22.5 billion yuan, maintaining a “highly recommended” rating.

2024Q2 revenue decreased by 11.96%, and net profit after deducting non-return to mother decreased by 32.37%. The company disclosed its 2024 semi-annual report. H1 achieved revenue/ deduction of non-net profit of 2.618/0.339 billion yuan, respectively -1.35%/+14.53% year-on-year. Among them, Delicious Fresh achieved revenue/net profit to mother of 2.556/0.351 billion yuan, -0.60%/+11.07% year-on-year. Q2 achieved revenue/net profit of 1.134/0.103 billion yuan, respectively -11.96%/-32.37% year-on-year, and Delicious Fresh Company's Q2 revenue/net profit to mother was 1.095/0.107 billion yuan, -12.12%/-34.41% year-on-year, respectively. Revenue and profit fell short of expectations. 24Q2 cash repayments were 1.346 billion yuan, a year-on-year decrease of 5.35%. The end-of-period contract debt was 0.115 billion yuan, compared to 0.097 billion yuan in the same period last year.

Nationalized investment promotion is being promoted, but demand is pressure+reforms have run-in, and revenue from condiments declined in Q2. The company's 24Q2 main revenue fell 18.7% year on year, mainly due to external demand pressure and increased industry competition in the second quarter. At the same time, the company's channel reform is still in the run-in stage. By product, 24Q2 soy sauce/chicken powder, cooking oil/other products achieved revenue of 6.11/0.146/0.114/0.129 billion yuan, respectively, or -22.0%/-15.4%/+29.1%/-30.9%. The higher increase in cooking oil was mainly due to the low base for the same period last year.

Looking at the subregion, the company continued to promote nationalization. The number of dealers at the end of Q2 was 2,285, a net increase of 104 compared to the end of Q1. Among them, the east/southern/midwester/northern regions had a net increase of 10/13/29/52, and the revenue of each region was -18.7%/-11.0%/-25.0%/-31.2%. The non-main sales area declined more. It is speculated that the market base and manufacturer relationships are relatively weak, and the cost of reform friction is higher.

Gross margin remained high, and increased cost investment dragged down net profit performance. Q2 The company's gross profit margin was 36.17%, maintaining a high position, with a year-on-year increase of 3.6 pcts, mainly benefiting from lower raw material costs and optimization of procurement and production efficiency. Q2 Sales/management/ R&D expense ratios were 14.83%/7.75%/3.69%, respectively. The increase in sales expenses ratio was mainly due to channel reform and increased cost investment. 24H1's operating expenses were 0.131 billion yuan, an increase of 74.6% year over year, which was the main item of increase in sales expenses. The increase in management expenses was mainly an increase in salary expenses, consulting fees, depreciation expenses, etc. Driven by cost investment, Q2 deducted 9.07% of the non-net interest rate, down 2.7 pcts year on year.

Investment advice: Adjust reform pain points in a timely manner, advance real estate divestment steadily, and maintain the “Highly Recommended” rating.

Company reforms require run-in. Dealer meetings have been held since the end of June to optimize and improve the problems encountered in the second quarter reform, improve marketing team organization capabilities, strengthen dealer hierarchical management, and improve cost investment efficiency. Since July, dealer inventory has declined, and the shipping side has resumed growth, and H2 performance is expected to improve sequentially. Earlier, the company signed a “Land Acquisition Compensation Contract”, and the real estate divestment took a substantial step. Without considering this year's compensation revenue, we lowered our 24-25 EPS forecast to 0.90 and 1.13 yuan. We expect to achieve a net profit of 0.7 billion yuan in 24, giving 25 times PE, plus the company's land value of 5 billion yuan and target market value of 22.5 billion yuan, maintaining a “highly recommended” rating.

Risk warning: declining demand, phased intensification of industry competition, short-term fluctuations in reforms, etc.