Incident: The company published its 24-year report. At 24H1, the company achieved revenue/net profit of 109.478/1.097 billion yuan, -7.78%/+13.57% year-on-year, with a basic EPS of 0.20 yuan. In 24Q2, the company achieved revenue/net profit of $52.205/0.214 billion yuan, -9.48%/+92.10% YoY.

Prices of major products fell, and 24H1 revenue declined year over year. 24H1, the company's revenue from the kitchen food/feed ingredients and grease technology business was 69.674/38.966 billion yuan, -5.24%/-12.37% year-on-year. The main reason for the decline in revenue was that product sales prices declined as the prices of raw materials such as wheat and soybeans declined. In terms of sales, the sales volume of 24H1's kitchen food/feed ingredients and grease technology business was 11.373/12.129 million tons, +2.53%/+3.67% year-on-year respectively, and sales increased slightly. In terms of price, the average sales price of 24H1's kitchen food/feed ingredients and grease technology business was 6126.26/3212.60 (yuan/ton), -7.58%/-15.47% compared with the same period last year.

The gross margin improved year over year, and the expense ratio increased year over year. In terms of gross margin, the 24H1/24Q2 company's gross margin was 4.90%/4.65%, +0.75pp/ +1.54ppt year over year. The increase in gross margin was mainly due to cost reductions exceeding sales price declines, and profit margins were repaired. By business, the gross margin of the 24H1 kitchen food/feed ingredients and grease technology business was 6.86%/1.01%, compared with +0.26ppt /+1.33ppt. The profitability of the feed ingredients and fats technology business improved markedly. In terms of cost ratio, the 24H1/24Q2 company's expense ratio was 4.61%/4.82%, compared with +0.58pp/+1.03ppt compared to the same period. The increase in the cost ratio is mainly 1) the increase in the management fee rate and financial expense ratio due to the increase in employee remuneration and interest expenses. The 24H1 management/finance expense ratio was 1.66%/0.12%, +0.16pp/ +0.21ppt; 2) Sales & R&D expenditure remained stable, and the decline in revenue led to a passive increase in the cost rate.

Production capacity has increased steadily, and the scale advantage has been further strengthened. As of 24H1, the company had 80 production bases, and the production capacity of oilseed pressing/oil refining/grease filling was 14.724/6.025/7.815 million tons, +5.84%/+2.87%/+2.38% year-on-year respectively, and production capacity in the main business continued to increase.

Investment advice: Based on the operating situation in the first half of the year, we slightly lowered our profit forecast. We expect the company's net profit to be 3.134/4.016/4.759 billion yuan in 24-26, +10.0%/+28.1%/+18.5% over the same period last year. The decline in raw material costs is expected to help improve the company's profitability, stabilize the company's leading position, and maintain a “gain” rating.

Risk warning: weak consumer demand, higher costs than expected, food safety issues, etc.