Incident: On August 21, 2024, the company issued the “Repurchase Report”. All shares to be repurchased were cancelled and the registered capital was reduced in accordance with the law. The total repurchase capital was not less than 0.1 billion yuan (inclusive) and not more than 0.2 billion yuan (inclusive). The repurchase plan was reviewed and approved by the company's board of directors and shareholders' meeting.

The plan is to buy back and cancel shares, be optimistic about their own development prospects, and enhance investor confidence. Based on confidence in the company's future development prospects and recognition of its long-term value, in order to enhance investor confidence, the company plans to use its own funds to repurchase some of the company's shares. The repurchased shares will all be cancelled and the registered capital reduced. Specifically, the total capital to be repurchased by the company: 0.1 billion yuan (inclusive) to 0.2 billion yuan (inclusive); the price of shares to be repurchased: no more than RMB 20 per share (inclusive). According to the maximum repurchase price estimate, the number of shares repurchased by the company is estimated to be about 5 million to 10 million shares, accounting for 0.29% to 0.59% of the company's total issued share capital. The main purpose of the company's share repurchase in November 2023 is for the company's employee stock ownership plan or share incentive. This repurchase is the first time that the company has directly used the repurchase plan to cancel all of its shares, reflecting the company's current recognition of its long-term value.

Active adjustments were made in the second half of the year, and it is expected that online channel performance will gradually improve. Looking ahead to the second half of the year, the company proposed to improve the quality of future operations as the core goal, actively adjust and optimize the overall business strategy and cost investment model, reorganize the combined strategy of flagship stores and distribution systems, and strengthen Douyin's profitability. According to Wind, the sales volume of the company's flagship stores and direct-run stores on online e-commerce platforms such as Tmall and Jingdong in July 2024 was about 0.256 billion yuan. The quarterly moving average growth rate was -5.06%, and the decline narrowed month-on-month. We expect the company's online cost investment conversion situation in the second half of the year to be better than in the first half of the year. In addition, the company will promote the iterative upgrading of the two core products. The replacement of old and new products in the second half of the year is expected to have a certain impact on performance in the short term. In the medium to long term, the company's changes in 2024 may have a positive impact on the company's development for a long time to come.

Investment advice: We believe that in 2024, the company will adhere to the strategy of strong technology and strong brand, comprehensively deepen reforms, and not change the trend of increasing market concentration brought about by continuous investment in medium- to long-term strong brands under short-term pressure. We expect the company to achieve net profit of 1.143/1.491/1.775 billion yuan in 2024-26, -35%/+31%/+19%, EPS of 0.67/0.88/1.04 yuan/share respectively, and corresponding PE is 16X/12X/10X, respectively, maintaining the “recommended” rating.

Risk warning: Intense market competition increases risk, risk that market demand falls short of expectations, risk that the company's new product promotion falls short of expectations, and food safety risks.