The company released its 2024 semi-annual report: 2024H1 achieved operating income of 0.812 billion yuan (YoY +29.3%), net profit of 0.095 billion yuan (YoY +111.7%), net profit of 0.082 billion yuan (YoY +90.0%); Single Q2 achieved operating income of 0.429 billion yuan (YoY +24.5%) and net profit to mother of 0.053 billion yuan (YoY +12.1%, YoY after excluding exchange effects) + 101.2%), minus non-net profit of 0.047 billion yuan (-2.6% YoY). 24H1 has benefited from overseas customer inventory replenishment. Orders from some old customers have maintained good growth, and new customers continue to contribute incremental revenue, driving rapid revenue growth.

Old customers are deeply tied in, growing steadily, and new customers continue to break through. The revenue of 2024H1's pet pads/pet diapers/nursing mats/non-woven fabrics was 7.13/0.047/0.008/0.038 billion yuan (+30.5%/+13.3%/+72.9%/+33.0%, respectively), and all categories maintained a relatively rapid growth rate. The company is deeply tied to high-quality global customers such as Amazon, PetSmart, Walmart, South Korea's Coupang, Japan's JAPELL, and Japan's AEON. 24H1 customer CR5 is 48.1% (+2.4pct year over year), increasing customer stickiness. At the same time, the company actively participated in large-scale exhibitions at home and abroad, vigorously expanded and tapped potential customers, deeply cultivated the American, European and Southeast Asian markets, and continued to contribute to growth. The export value of 24H1's pet hygiene products accounted for 33.7% of domestic exports of similar products (+2.6 pct compared to the full year of '23), increasing its market share.

Overseas orders have been repaired, profits have been improved, and private brands can be expected to be sold. 2024H1's domestic/overseas revenue was 0.054/0.759 billion yuan (+28.7%/+29.4%, respectively), and gross margin was 1.6%/20.1% (year-on-year -1.9pct/+6.1pct), respectively. Domestic & overseas revenue grew rapidly, along with order growth, the company's capacity utilization rate increased, combined with stable raw material prices, internal cost reduction and efficiency, and rapid recovery of overseas gross margin. The company's own brands “Happy Pet”, “Yipeng Flower Room” pet urinal pads, pet diapers, pet cleaning bags, etc. are mainly sold through dealers, JD's own businesses, Tmall, Douyin, etc. As the domestic pet hygiene products industry matures, the volume of its own brands can be expected.

Release employee stock ownership plans to bind outstanding talents. On August 15, the company announced an employee stock ownership plan. The participants were the company's directors, supervisors and core key employees, with a total number of no more than 65 people. The employee stock ownership plan will obtain the company's shares held in the company's special securities account through non-transactional transfers, etc., and the initial grant price is 6.42 yuan/share. The revenue targets for 24-26 are 1.67/1.88/2.06 billion yuan, respectively, and 40%/30%/30% for 24-26 years, respectively, are deeply tied to the company's core backbone and outstanding talents.

Profitability continues to improve, cash flow is under slight pressure, and operating capacity is optimized. 2024Q2's gross margin was 19.5% (+0.9pct year on year), net profit margin was 12.3% (yoy -1.4pct), and sales/management/R&D expense ratios were 1.8%/2.8%/1.5% (-0.2pct/-0.1pct yoy), respectively. 24Q2's operating cash flow was -0.03 billion yuan (-0.06 billion yuan year on year). The cash flow was under pressure, mainly due to granting a certain credit period to new customers, and was accompanied by an increase in order growth and payment cash. In terms of operating capacity, as of the end of 24Q2, the company's inventory turnover days was 44 days (year-on-year - 10 days), accounts receivable turnover days were 67 days (year-on-year - 5 days), and accounts payable turnover days was 39 days (year-on-year - 5 days), and operating capacity was optimized. In addition, the company paid dividends in mid-year 24, accounting for 51.9% of the current profit distribution amount, and high-frequency dividends continue to give back to shareholders.

Profit forecast and investment advice: We expect the company's net profit to be 0.17 billion yuan, 0.2 billion yuan, and 0.23 billion yuan respectively in 2024-2026, corresponding to PE of 13.1X, 11.1X, and 9.7X, maintaining a “buy” rating.

Risk warning: Risk of fluctuations in raw material prices, declining overseas demand, and intensifying market competition.