Description of the event

Zhongju Hi-Tech released its 2024 mid-year report. 2024H1 achieved total operating income of 2.618 billion yuan (-1.35% YoY), net profit of 0.35 billion yuan (year-on-year correction), and deducted non-net profit of 0.339 billion yuan (+14.53% YoY). 2024Q2 alone achieved total operating income of 1.134 billion yuan (-11.96% YoY), net profit to mother of 0.111 billion yuan (year-on-year correction), after deducting non-net profit of 0.103 billion yuan (-32.37% YoY).

Incident comments

Q2 Main business growth is under pressure, and the number of channels continues to increase. By product, 2024H1 revenue: soy sauce 1.557 billion yuan (YoY -3.71%), single 2024Q2 (YoY -21.99%); chicken extract chicken powder 0.327 billion yuan (YoY -0.12%), single 2024Q2 (YoY -15.4%); cooking oil 0.215 billion yuan (YoY +10.09%), single 2024Q2 (YoY +29.14%); others 0.342 billion yuan (YoY -14.52%), single 2024Q2 (YoY: -30.86%) Looking at 2024H1 revenue by channel: distribution 2.367 billion yuan (YoY -4.58%), single 2024Q2 (YoY -19.66%); direct sales 0.074 billion yuan (YoY +25.27%), single 2024Q2 (YoY +23.32%). Looking at 2024H1 revenue by region: East 0.611 billion yuan (YoY +3.12%), single 2024Q2 (YoY -18.66%); South 0.965 billion yuan (YoY -4.14%), single 2024Q2 (YoY -11.05%); Midwest 0.517 billion yuan (YoY -6.37%), Single 2024Q2 (YoY -25.03%); North 0.349 billion yuan (YoY -10.36%), single 2024Q2 (YoY) (Compared to -31.15%). As of 2024H1, a total of 2,285 dealers were sorted out, +104 month-on-month; 406 in the east, +10 month-on-month; 345 in the south, +13 month-on-month; 675 in the Midwest, +29 month-on-month; and 859 in the north, +52 month-on-month.

Operating expenses have increased a lot, and the profitability of the 2024Q2 main business is under pressure. The company's 2024H1 net profit margin increased by 67.72pct to 13.36%. Among them, gross margin was +4.68 pct to 36.63%, and the period expense ratio was +2.91 pct to 21.04% year over year, with detailed changes: sales (+2.31 pct year over year), management (+0.62 pct year over year), research and development (-0.17 pct year over year), and finance (+0.14 pct year over year). Looking at 2024Q2 alone, the company's net profit margin increased by 133.45 pct year on year to 9.77%. Among them, gross margin was +3.64pct yoy to 36.17%, and the period expense ratio was +8.38pct yoy to 26.51%, with detailed changes:

Sales (+6.43 pct year over year), management (+1.48 pct year over year), R&D (+0.1 pct year over year), finance (+0.36 pct year over year).

The company's Q2 operating expenses increased a lot, leading to a sharp increase in the cost ratio, which dragged down profits.

Short-term market demand is under pressure, and channel expansion and marketing management changes have been blocked for a long time. Market demand is slowing down, channel expansion and revenue growth are under pressure, and the company coincides with a period of change. A rigid increase in expenses (marketing investment, new team in place) compounded by additional consolidation brought about increased depreciation, and short-term profit pressure was relatively greater. In addition, the company and its subsidiary Zhonghui Hechuang signed a contract related to land acquisition compensation at the Huoju District Expropriation Center, and it is expected that related revenue will also increase annual performance. It is estimated that in 2024/2025, the company's net profit to mother will be approximately 1.034/1.063 billion yuan respectively, corresponding EPS will be 1.32/1.36 yuan, and corresponding PE will be 14/14 times, respectively. Management-driven performance is expected to gradually improve and maintain the “buy” rating.

Risk warning

1. The risk of slow recovery in demand;

2. Industry competition further exacerbates risks;

3. Risk of changes in consumer consumption habits.