occurrences

On August 16, 2024, Ziyan Foods released its 2024 interim results report.

Key points of investment

Raw material costs have declined, and profit levels have rebounded

The company achieved total revenue of 1.663 billion yuan (-4.59% YoY) in mid-2024, and the number of stores nationwide reached 6,308 as of June 30. Looking at the split revenue of the channel model, the distribution model achieved revenue of 1.387 billion yuan, accounting for about 85%; the direct management model achieved revenue of 0.032 billion yuan, accounting for about 2%; and the other models achieved revenue of 0.218 billion yuan, accounting for about 13%. In the first half of the year, the company achieved a gross profit margin of 24.79% (+3.66pcts), a sales rate of 5.07% (year-on-year increase), a management rate of 5.35% (0.68pct increase), a net profit margin of 11.95% (1.79pcts), net profit to mother of 0.198 billion yuan (+10.28%), deducting non-net profit of 0.163 billion yuan (YoY +14.78%).

External environmental pressure is still high, and the company layout is long-term

The 2024 single quarter achieved total revenue of 0.969 billion yuan (-1.98% YoY), gross profit margin of 27.59% (+4.59pcts), net profit of 14.97% (+1.49pcts), net profit to mother of 0.144 billion yuan (+6.77% YoY), net profit of 0.124 billion yuan (YoY +15.05%). Store operating pressure is still strong, but raw material prices are expected to fluctuate in a low range, declining year on year, driving up gross margin and profit levels year on year. The company increased supplier advance payments to lock in raw material prices, and provided a certain credit line to support franchisees to quickly open stores before the peak season, which had a negative impact on the company's cash flow from operating activities in the first half of the year. The whole year will be beneficial to revenue growth and cost control in 2024.

Profit forecasting

We expect that the company will continue to maintain a steady expansion in the number of stores, and that single-store revenue is expected to improve steadily in the future with the company's refined management and new product development and innovation capabilities. We have slightly lowered our profit forecast. We expect EPS for 2024-2026 to be 0.83/0.93/1.04 yuan, respectively. The current stock price corresponds to PE 17/15/13 times, respectively, to maintain a “buy” investment rating.

Risk warning

Downward macroeconomic risks, the pandemic has dragged down consumption, costs have fallen short of expectations, equity incentives have progressed less than expected, and the pace of opening stores has fallen short of expectations.