Incident: On August 27, 2024, Shanghai Race achieved operating income of 4.252 billion yuan, a year-on-year increase of 9.02%: net profit of 1.241 billion yuan, an increase of 0.15% year on year: net investment income of 0.34 billion yuan, an increase of 69% over the previous year; and net cash flow from operating activities of -0.05 billion yuan. 24Q2 achieved revenue of 2.196 billion yuan, up 1951% year on year: mother net profit of 0.484 billion yuan, down 7.00% year on year; net investment income of 0.07 billion yuan, down 16.02% year on year; net cash flow from operating activities -0.8 billion yuan. The revenue growth rate in Q2 was better, with sales of ten white eggs and factor products. Net profit to mother was affected by 0.03 billion yuan asset and credit impairment, 0.013 billion yuan net income difference, and 0.066 billion yuan non-operating expenses, which together affected net profit to mother about 1.1 billion yuan. Net cash flow from operating activities decreased year-on-year, mainly because the company paid for imported albumin in advance to obtain corresponding cash discounts and exchange rate compensation.

The revenue growth of self-produced and imported albumin and factor products was good, and sales of hydroxypropyl declined. 1) 24H1 imported albumin achieved revenue of 1.955 billion yuan, a year-on-year increase of 18.87%, accounting for 46% of revenue, a gross profit margin of 17.86%, and a year-on-year decrease of 2 pcts. 2) Self-produced albumin achieved revenue of 0.8 billion yuan, a year-on-year increase of 17.21% and a gross profit margin of 46.21%, an increase of 2 pcts over the previous year. 3) Jingbing achieved operating income of 8.39 0.1 billion yuan, a year-on-year decrease of 15.50% and a gross profit margin of 58.73%, an increase of 2 carats over the previous year. 4) Other blood products achieved operating income of 0.607 billion yuan, a year-on-year increase of 15.69%, gross profit margin of 83.31%, and a year-on-year decrease of 2 pcts. Gross margin declined slightly, mainly due to an increase in the share of low-gross products and exchange rate changes: management expenses increased in the short term, and sales expenses and R&D expenses remained stable. 24H1 gross profit margin was 41%, down 2 pcts year on year; 24Q2 gross profit margin was 42%, up 0.8 pct year on year. The decline in 24H1 gross margin was mainly due to an increase in the share of imported egg 100 sales. At the same time, the gross margin of imported protein declined in the first half of the year due to changes in the exchange rate of the US dollar against the People's Market. 24H1 sales, management, and R&D expenses rates were 4.6%, 4.9%, and 2.5%, respectively; single 02 sales, management, and R&D expenses rates were 5.9%, 5.1%, and 2.5%, respectively. 24H1 management expenses increased 27.31% year-on-year, mainly due to Guangxi Laishi's merger consolidated statement. 23H1 had no share payment fees.

Investment proposal: In 2024, Kirriff completed a transaction to sell 20% of Shanghai Rice's shares to Haiyingkang, a wholly-owned subsidiary of Haier Group, with a cash consideration of 12.5 billion yuan/1.6 billion euros, corresponding to a market value of 62.5 billion yuan. We expect the company's net profit to be 2.198/2.527/2.914 billion yuan in 2024-2026. The current stock price corresponds to 2024-2026 PE being 22/19/17 times, maintaining the “recommended” rating.

Risk warning: collection risk, risk of product sales falling short of expectations, risk of failure in new product development.