Incident: The company released its 2024 semi-annual report. 24H1 achieved revenue of 10.915 billion yuan, a year-on-year increase of 392.45%, and achieved net profit due to mother of 0.9346 million yuan, a year-on-year increase of 116.77%. After deducting non-return net profit loss of 3.08 million yuan, a year-on-year decrease of 5.68 million yuan. 24Q2 achieved revenue of 6.085 billion yuan, a year-on-year increase of 318.30%, net profit loss to mother of 5.3 million yuan, a year-on-year decrease of 52.9 million yuan, net loss of 5.06 million yuan after deducting non-attributable net profit loss of 5.06 million yuan, and a year-on-year loss of 55.41 million yuan.

Revenue from mass snack sales has increased rapidly, and profitability continues to improve. 24H1 mass-sold snacks achieved revenue of 10.674 billion yuan, an increase of 447.78% over the previous year, and achieved net profit of 0.28 billion yuan after excluding accrued share payment fees. Benefiting from the scale effect, 24H1 gross margin was 10.87%, up 3.01 pct year on year, and sales expenses decreased month-on-month. Net interest rates for the Q1 and Q2 snack sales businesses after excluding accrued share payments were 2.50% and 2.72%, respectively, and profitability increased month-on-month. As of 24H1, the number of stores was 6,638, a net increase of 1,912 compared with the end of '23, and store expansion maintained a relatively rapid growth rate.

Q2 Due to the low season for the edible fungus industry, revenue and profit are under pressure. 24H1 edible fungi achieved revenue of 0.241 billion yuan, a year-on-year decrease of 10.03%. Among them, enoki mushrooms achieved revenue of 0.181 billion yuan, a year-on-year decrease of 10.91%, gross margin of -15.58%, a year-on-year decrease of 32.59pct, and mashime-mushroom achieved revenue of 0.041 billion yuan, a year-on-year decrease of 4.61%, gross margin of 26.46%, up 3.01 pct year-on-year. The total profit loss for 24H1 edible fungi was 46.7 million yuan.

The scale effect is prominent, and the management cost ratio has been drastically reduced. The cost rate during the 24Q2 period was 8.44%, down 3.83 pcts year on year. Among them, the sales expense ratio was 4.86%, down 0.53 pct year on year, management cost ratio was 3.42%, down 2.98 pct year on year, R&D expenses rate was 0.02%, down 0.05 pct year on year, financial expense ratio was 0.14%, down 0.26 pct year on year.

Operations continued to improve, and minority shares were recovered to increase net profit to the mother. The number of the company's stores has maintained rapid growth, consolidated its leading position in the industry, continuously strengthened its supply chain advantages, focused on brand building, improved the level of refined organizational management, and increased scale driven continuous improvement in profit levels. Recently, the company announced the withdrawal of minority shares in some subsidiaries to increase net profit attributable to mother. Minority shares in other subsidiaries are also expected to be recovered one after another to raise the level of net profit to mother.

Investment advice: We expect the company's 2024-2026 revenue to be 26.604/42.163/54.594 billion yuan, respectively, up 186.26%/58.49%/29.48% year on year. The company is expected to achieve net profit of 0.166/0.392/0.627 billion yuan in 2024-2026, up 300.09%/136.20%/60.02% year on year, respectively, corresponding to 24-26 PE 27.6/11.7/ 7.3X, maintaining a “Recommended” rating.

Risk warning: store expansion is not as fast as expected, industry competition intensifies, food safety risks, etc.