occurrences

On August 13, 2024, Arowana released its 2024 semi-annual report.

Key points of investment

▌Volume increases and price falls put pressure on revenue, and cost optimization is beneficial to profits

The company's total 2024H1 revenue was 109.478 billion yuan (same decrease of 8%), mainly due to the impact of falling product prices exceeding the volume increase. Net profit to mother was 1.097 billion yuan (same increase of 14%), and net profit after deducting non-return to mother was 0.161 billion yuan (same increase of 1014%).

2024Q2's total revenue was $52.205 billion (down 9%), net profit attributable to mother was 0.214 billion yuan (same increase of 92%), and net profit loss of 0.083 billion yuan after deducting non-attributable net profit loss of 0.083 billion yuan (loss of 0.226 billion yuan for the same period in 2023). On the profit side, as raw material costs continued to decline, 2024H1's gross margin increased by 1 pct to 4.90%, the sales/management expense ratio increased 0.2 pct/0.2 pct to 2.72%/1.66%, and the net margin increased 0.3 pct to 0.94%, which remained stable.

▌The C-side boom of core products is expected to continue marginal optimization of profits

Kitchen food continued to increase and fall in price. 2024H1's kitchen food revenue was 69.674 billion yuan (same decrease of 5%), sales volume was 11.373 million tons (same increase of 3%), tonnage price 0.0061 million/ton (same decrease of 8%), gross margin increased 0.3 pct to 6.86%, lower raw material costs boosted the gross profit margin of C-side products, while falling prices dragged down B-side profit space. Among them, the flour business is expected to lose money while wheat/bran prices slow down. Marginal profit recovery in the second half of the year. The gross profit of feed raw materials and oil technology continues to be optimized. 2024H1's feed raw materials and oil technology revenue was 38.966 billion yuan (same decrease of 12%), sales volume was 12.129 million tons (same increase of 4%), tonnage price was 0.0032 million/ton (same decrease 15%), and gross margin increased by 1 pct to 1.01%, mainly due to falling soybean prices combined with increased prosperity in the downstream farming industry, and profit margin was freed up. Subsequent overseas factories can take advantage of raw material procurement costs. At the same time, procurement/process optimization in the Lianyungang Park continues to advance, and products are continuously extended downstream. It is expected that 2024Q3 profit will continue to grow month-on-month.

Profit forecasting

As a leading kitchen food company, revenue is pressured by fluctuations in raw material costs in the short term, but product sales are still rising steadily, and they are using supply chain advantages to explore a new blue ocean for central chefs. They are optimistic that the decline in the company's channels will bring room for scale growth. As market demand picks up, performance is expected to recover further. According to the semi-annual report, we adjusted the 2024-2026 EPS to 0.57/0.71/0.84 yuan (previous value was 0.77/1.00/1.13 yuan), and the PE corresponding to the current stock price is 45/37/31 times, respectively, maintaining a “buy” investment rating.

Risk warning

The risk of macroeconomic fluctuations, the risk of changes in industry policies, consumption recovery falling short of expectations, fluctuations in downstream demand, fluctuations in raw material prices, etc.