Key points of investment:

The company released its 2024 semi-annual report: in the first half of the year, the company achieved total revenue of 7.175 billion yuan, an increase of 6.87%; net profit without return to mother was 0.596 billion yuan, a year-on-year decrease of 2.47%.

Among them, the company achieved revenue of 3.692 billion yuan in the second quarter, an increase of 11.31%; net profit without deduction to mother was 0.301 billion yuan, an increase of 7.32%. Both revenue and profit growth in the second quarter improved compared to the first quarter.

Sales growth in the domestic market was less than 1%. Domestic sales achieved revenue of 4.315 billion yuan in the first half of the year, an increase of 0.89% over the previous year. Among them, revenue from the packaging materials business decreased by 9.04% year on year, but considering that the revenue share of the packaging business was only 4% to 5%, it is judged that yeast sales growth in the domestic market was limited in the first half of the year. According to our estimates, the domestic market's revenue for the second quarter was 2.211 billion yuan, up 6.66% from 2.073 billion yuan in the same period last year. The sales situation in the domestic market improved markedly in the second quarter compared to the first quarter.

Yeast sales in foreign markets have maintained a high increase. Overseas sales achieved revenue of 2.824 billion yuan in the first half of the year, an increase of 17.89% over the previous year. By mid-term, the share of overseas revenue had risen to 39.36%, an increase of 3.68 percentage points over the previous year. Among them, the sales volume of the Egyptian factory increased 13.56% year over year, reaching 0.536 billion yuan.

The gross margin of yeast increased significantly, and the gross margin of the packaging business fell by nearly half. The gross margin of the main yeast business rose to 26.26% in the first half of the year, an increase of 0.75 percentage points over the previous year. Driven by declining domestic molasses costs, the profit level of the main yeast business rebounded significantly. However, the gross margin of the packaging business fell 7.36 percentage points year over year to 7.9%. The main reason for the decline in profit was the decline in scale effect due to reduced sales revenue.

With the expansion of overseas markets and the expansion of the scale of asset operations, the company's financial and sales rates have risen. In the first half of the year, the company's financial and sales rates increased by 0.38 and 0.11 percentage points, respectively. The net sales margin fell 0.51 percentage points to 9.88% due to the increase in the main rate.

Investment reviews estimate that the company's earnings per share for 2024, 2025, and 2026 were 1.57, 1.80, and 2.05 yuan, respectively. Referring to the company's closing price on August 16, the corresponding price-earnings ratios were 19.34 times, 16.84 times, and 14.79 times, respectively. We downgraded the company's rating to “increase holdings.”

Risk warning: If the cost of molasses does not continue to decline, the profit recovery in the main business will be limited; financial and sales rates will continue to rise, which will erode the company's profits. If the US economy weakens in the next stage, it will affect the development of the company's business in the US; if the economic recession affects other economies, the company's overseas business will be impacted. Demand for yeast in the domestic market has been slow to recover.