occurrences

Ziyan Foods released its 2024 semi-annual report. 2024H1 achieved revenue of 1.663 billion yuan, -4.59% year over year, and realized net profit of 0.198 billion yuan to mother, +10.28% year over year. In 2024Q2, the company achieved revenue of 0.969 billion yuan, -1.98% YoY; realized net profit to mother of 0.144 billion yuan, +6.77% YoY.

Operations are still under pressure, and stores are expanding steadily

(1) By product, 2024Q2 fresh goods achieved revenue of 0.824 billion yuan, or -3.15%. Among them, revenue from husband and wife lung fillets, whole poultry, spicy leisure, and other fresh goods was 2.94, 0.244, 0.068, and 0.218 billion yuan, respectively, compared to -6.52%, -2.46%, -24.58%, and +11.30%, respectively. (2) By channel, the 2024Q2 distribution model, direct management model, and other revenue were 0.826, 0.017, and 0.111 billion yuan, respectively, compared with -4.61%, +2.32%, and +19.61%, respectively. Among them, the number of dealers in 2024H1 company increased 8.65% year over year to 113, and dealer units generated revenue -15.72% year over year to 0.012 billion yuan; the number of 2024H1 stores nationwide reached 6,308, +2.79% year over year. (3) By region, the revenue of 2024Q2 in East China, Central China, Southwest China, North China, South China, Northwest China, and Northeast China was 6.51, 1.15, 0.88, 0.49, 0.025, 0.013, 0.006 billion yuan, respectively, -4.58%, +1.98%, +14.50%, +5.35%, -38.86%, and -36.18%, respectively.

Release of cost dividends and increase in profit levels

Due to falling prices of major raw materials and further release of cost dividends, 2024Q2's operating costs were -7.83% year-on-year, and gross margin was +4.60pct year-on-year to 27.59%. 2024Q2's sales expense ratio, management expense ratio, and R&D expense ratio were 4.96%, 4.61%, and 0.35%, respectively, -0.47, +1.32, and +0.16pct year-on-year, respectively. Driven by cost dividends, 2024Q2's net interest rate was 14.97%, +1.49pct year over year.

Profit Forecasts, Valuations, and Ratings

Considering that demand recovery is lackluster, we adjusted the company's revenue for 2024-2026 to 3.623/3.981/4.376 billion yuan, respectively, 2.04%/9.89%/9.93% year-on-year; net profit to mother was 0.344/0.385/0.431 billion yuan, respectively, with year-on-year growth rates of 3.90%/11.69%/12.06%, respectively. EPS was 0.83/0.93/1.04 yuan respectively. The company's stores are expanding steadily. We look forward to subsequent improvements on the business side and maintain the “buy” rating.

Risk warning: food safety risk, risk of market expansion falling short of expectations, risk of rising raw material prices