Incident: Yanjin Shop released its 2024 semi-annual report. 2024H1 achieved revenue of 2.459 billion yuan, +29.84% year over year, net profit to mother 0.319 billion yuan, +30.00% year over year, net profit of 0.273 billion yuan after deducting non-return net profit of 0.273 billion yuan, or +17.96% year over year. 2024Q2 achieved revenue of 1.236 billion yuan, +23.44% year over year, net profit to mother 0.16 billion yuan, +19.11% year over year, net profit after deducting non-return to mother of 0.135 billion yuan, +1.58% year over year.

The company's performance is in line with expectations, and snack sales and e-commerce channels are growing rapidly. The company's semi-annual report was in line with expectations, and the performance grew steadily. By product, 2024H1 spicy braised snacks/casual baking/deep-sea snacks achieved revenue of 0.898/0.342/0.324 billion yuan, +25.81%/+12.60%/+11.83%. Among them, spicy braised konjac and eggs achieved revenue of 0.31/0.239 billion yuan, +38.90%/+150.54%, achieving rapid growth and continuous climbing. In the first half of the year, the “Big Devil” brand continued to unleash its potential, reaching the top 1 hit list, popularity list, and praise list on the Douyin platform. Douyin's monthly sales have already exceeded 10 million. “Egg Yolk” joined Sam's members and performed brilliantly. By channel, the 2024H1 direct KA/distribution/e-commerce channel achieved revenue of 0.108/1.77/0.58 billion, compared to -43.58%/+35.07%/+48.41%. Direct KA declined a lot due to the company's strategic adjustments, the distribution channel was mainly due to the increase in snack sales volume, and the e-commerce channel mainly achieved rapid growth based on the Douyin channel based on the new categories of Big Devil and Egg King. As of 2024Q2, the company had 3180 dealers, a net decrease of 135 from the end of 2023, mainly due to strategic optimization of dealers.

Gross margin increased month-on-month, and net profit margin declined year-on-year due to brand promotion and dividend payments.

2024Q2's gross margin reached 32.96%, -3.07pct year on year and +0.86pct month-on-month. The increase from the first quarter was mainly due to a decrease in the price of core raw materials, which optimized the cost structure. On the cost side, the 2024Q2 sales/management/R&D/finance cost rates were 13.53%/4.79%/1.82%/0.25%, respectively, compared to +2.05/+0.67/-0.28/ -0.21pct. The increase in sales expenses was mainly due to participation in many national food fairs in the second quarter of this year, advertising for category brands, and B-side brand promotion. Net profit margin for 2024Q2 was 12.99%, -1.09pct year on year and -0.07pct month-on-month, mainly due to increased brand promotion fees and dividend payments compared to the same period last year. On the supply chain side, the company lays out production and construction of upstream raw materials such as potato powder, quail eggs, and konjac to open up the upstream industrial chain to achieve a cost advantage ahead of the industry. The company's future net interest rate is expected to gradually rise along with supply chain optimization and scale effects.

Investment advice: According to the 2024 mid-year report and adjusted profit forecast, the 2024-2026 revenue growth rate is expected to be 26.54%/24.16%/20.17%, respectively, the net profit growth rate to mother is 30.44%/27.51%/23.60%, and EPS is 2.40/3.07/3.79 yuan, respectively. Corresponding to the current stock price PE is 16x/13x/10x, respectively. We give it a “buy” rating based on the 2024 results.

Risk warning: Food safety risks, channel development falls short of expectations, industry competition increases risks.