The company released its 2024 semi-annual report. In the first half of the year, it achieved operating income of 1.58 billion yuan, -15.3% year-on-year; realized net profit to mother of 0.23 billion yuan, -8.9% year-on-year. Looking at the second quarter of a single quarter, the company achieved operating income of 1.37 billion yuan (-16.7%) and realized net profit of 0.3 billion yuan (-5.3%) to mother.

Consumption of Dragon Boat Festival rice dumplings is weak, and potential products such as rice balls and rice balls are expected to grow rapidly. By product, 24H1 zongzi achieved revenue of 1.33 billion yuan (yoy -16%), mainly due to weak consumption of rice dumplings during the Dragon Boat Festival season. High-end and mass price segments are stronger, and mid-range demand is declining; the meal series achieved revenue of 0.07 billion yuan (yoy -6%), and the decline in meals is low, and offline chain stores are expected to achieve stable customer traffic; egg products, pastries, and other realized revenue of 0.16 billion yuan (yoy -12%), of which large quick-frozen items such as rice balls and rice balls are expected to remain high Growth rate, egg products, youth groups, etc. continued to decline. By channel, 24H1, chain store/e-commerce store/supermarket/dealer achieved revenue of 2.0/0.37/0.23/0.67 billion, respectively, compared with -10%/-17%/-7%/-18%, respectively. The sales situation of offline chain stores, supermarkets and other channels was relatively stable. By region, the 24H1 East China base market achieved revenue of 0.86 billion yuan (yoy -14.4%). North China/Central China/Southwest/Northwest/Northeast China revenue was +27%/-16%/-26%/-9%/-18%, respectively. North China's growth rate is impressive. The growth rate of Shijiazhuang etc. is expected to be fast, and the construction results of some model markets outside the province are good.

It is expected that the product structure of rice dumplings will move upward, and gross margin will increase. 24H1, the company's gross margin is 44.8% (yoy+3.3pct). It is expected to benefit from the company's increase in the supply of high-end rice dumplings and an upward shift in product structure. The 24H1 sales/management expense ratio was 17.7%/6.2%, respectively, +0.8pct/+0.7pct, respectively; the net sales margin was 14.7% (yoy+1.0pct), which increased the profit level.

Mooncakes will enter peak sales season and actively promote new products to enhance competitiveness. Mooncake is the company's second-largest business, and is about to enter the peak sales season during the Mid-Autumn Festival; the company actively launches innovative products, such as milk-flavored fluffiness and white glutinous rice mooncakes, etc., which focus on delicious, healthy, and unique characteristics to meet the diverse needs of consumers. The company continues to promote “retail+light catering” small community stores and is verifying the business model. It is expected that rapid expansion through franchise will contribute to increased performance in the future.

According to the 24-25 semi-annual report, revenue was lowered for 24-25. We forecast that the company's net profit for 24-26 will be 159, 173, and 207 million yuan, respectively (the original forecast was 214 and 249 million yuan for 24-25). Combined with comparable companies, we believe that the current reasonable valuation level of the company is 20 times the price-earnings ratio in 24 years, and the corresponding target price is 16.00 yuan, maintaining the purchase rating.

Risk warning: The growth rate of baking and quick-freezing falls short of expectations, market expansion outside of East China falls short of expectations, risk of food safety incidents.