Core views

The company is under a lot of pressure to operate this year. The company's top two customers both experienced year-on-year declines in the first half of this year, with declines of 12.57% and 6.59% respectively, mainly due to weak external demand and the impact of last year's high base. The company has also increased its development efforts for direct waist customers. By the end of H1, the number of major customers had reached 178. The company's 24Q2 gross margin was 24.95%, up 2.43 pcts year on year, but expenses increased significantly, and net profit margin decreased slightly by 0.03 pcts year on year to 5.77%. It is expected that the company is still expected to achieve restorative growth by taking advantage of restaurant chain development opportunities.

occurrences

The company announced its 2024 mid-year report:

Within H1, the company achieved revenue of 0.892 billion yuan, up 4.87% year on year; net profit to mother was 0.059 billion yuan, up 6.14% year on year; net profit after deducting non-return to mother was 0.059 billion yuan, up 11.29% year on year.

In Q2, the company achieved revenue of 0.423 billion yuan, up 1.65% year on year; net profit to mother was 0.025 billion yuan, down 3.36% year on year; net profit after deducting non-return to mother was 0.025 billion yuan, up 7.77% year on year.

Brief review

The growth of large customers is under pressure from a high base, and prepared dishes continue to contribute incrementally, and the company is under great pressure to operate this year. By channel, the company's distribution (accounting for 53.31%) and direct sales (accounting for 46.23%) increased by 1.77% and 8.54%, respectively. The company's direct sales channels mainly connected to large catering customers. The slowdown in growth this year was mainly due to weak external demand and the impact of last year's high base. In particular, the company's top two customers accounted for 21.07% and 6.27% respectively. The first half of this year all showed year-on-year declines. The declines were 12.57%, 6.59%, and the third, fourth, and fifth customers respectively achieved growth, reaching 105.21%, 38.59%, and 53%, respectively 943.38%, mainly relatively small in size and driven by new products. Within H1, the company also increased its development efforts for direct lower back customers. By the end of H1, the number of the company's major customers had reached 178. Considering the decline in the base of leading major customers in the second half of the year, the growth rate is expected to increase. By product, larger deep-fried products (accounting for 41.94%) fell 4.26% year on year, mainly because the growth rate of core customers slowed down, and the current market share of sesame balls was high, and growth was relatively weak. Bakery products (accounting for 19.03%) declined 8.34% year over year due to a decrease in the share of main products in major core customers. Cooking (accounting for 23.61%), cooking, and others (accounting for 14.95%) continued to grow, with year-on-year increases of 32.40% and 18.99%, respectively. This is mainly due to the good promotion effect of products represented by pictograms in group meal channels and the increase in the contribution of B-side prepared dishes.

Gross margin is optimized year-on-year, and cost-side growth affects net interest

The company's 24Q2 gross margin was 24.95%, up 2.43 pcts year on year, and gross margin increased markedly. The main factors include: 1) the price of upstream raw materials decreased year on year; 2) the company continues to carry out intelligent transformation and automation improvements; 3) changes in product structure. However, in terms of costs, the year-on-year changes in the company's Q2 sales/management/R&D/finance rates were +0.48/+1.65/+0.24/ -0.45pcts, respectively. The increase in sales expenses was mainly due to an increase in business promotion fees and platform usage fees. The increase in management expenses was mainly an increase in employee remuneration. As a result, the company's net profit margin fell slightly by 0.03 pcts year on year to 5.77%.

Channels and products continue to expand, waiting for improvements in the second half of the year

The company's revenue growth slowed in the first half of this year, and overall demand in the catering industry was relatively sluggish. However, the company continues to expand its major customers and distribution channels. Judging from Big B, the base for the second half of the year was relatively low, and the company still has a certain advantage in developing new major customers and expanding categories for existing customers. Looking at the Little B channel, the company's dealer channel construction is constantly being improved to accelerate the national market layout. At the same time, the second half of the year will gradually enter a peak season, which will benefit product sales. Despite short-term operating pressure, the company's overall competitiveness is still being strengthened and continues to be recognized by large and small customers. It is expected that the company will still achieve restorative growth by taking advantage of chain restaurant development opportunities.

Profit forecast: According to the interim report, we have revised down some profit forecasts. We expect the company to achieve revenue of 2.05, 2.306, and 2.563 billion yuan in 2024-2026, and achieve net profit of 0.147, 0.172, and 0.197 billion yuan, corresponding EPS of 1.48, 1.73, and 1.98 yuan/share.

Risk warning: 1) Food safety risk: The company mainly provides frozen food to catering companies. If a related food safety incident occurs, it will have a significant adverse impact on the cooperation between the company and downstream customers, and it is not conducive to developing new customers. 2) Risk of rising raw material costs: The company's main raw material costs include raw materials for bulk agricultural products such as flour, oil, sugar, etc. If the company is unable to effectively control the cost of raw materials on the production side, profitability may decline in the short term. 3) Risk of customer growth falling short of expectations: While increasing the penetration rate of existing customers, the company is also actively expanding to small B-end and other big B customers. If customer development progress falls short of expectations, it will affect the judgment on the company's subsequent performance growth, etc.