Core views

The company's Q2 operation pressure is high, mainly due to the continuous decline in NKA and LKA system passenger traffic, leading to a decline in direct supermarket system revenue, but the catering channel (accounting for 18.56%) still achieved 8.13% growth under pressure from the catering market. Mainly, the company's innovative products are loved by chain catering customers and end consumers. At the same time, the company's expenditure increased, and promotion and marketing expenses reduced the company's gross margin by 1.80 pcts and the sales rate increased by 3.04 pcts. The company has launched many new products in recent years. At the same time, the company's catering channel has worked well. As cooperation with major customers continues to deepen, the development of chain restaurants has also helped the company to further increase its share of catering channels.

occurrences

The company announced its 2024 mid-year report:

H1, the company achieved revenue of 3.665 billion yuan, a year-on-year decrease of 4.91%; net profit to mother was 0.333 billion yuan, a year-on-year decrease of 23.75%; net profit not attributable to mother was 0.269 billion yuan, a year-on-year decrease of 29.6%.

In Q2, the company achieved revenue of 1.412 billion yuan, a year-on-year decrease of 4.74%; net profit to mother was 0.133 billion yuan, a year-on-year decrease of 34.36%; net profit after deducting non-return to mother was 0.071 billion yuan, a year-on-year decrease of 49.36%.

Brief review

The performance of noodle and rice products is under pressure, and restaurants are growing steadily

The company H1 is under high pressure to operate. By channel, the retail and innovation market (accounting for 81.44%) fell 7.45% year on year, mainly due to the continuous decline in NKA and LKA system passenger traffic, and the company strengthened accounts receivable risk control over direct supermarket channels, which led to a decline in direct supermarket system revenue. However, the catering channel (accounting for 18.56%) performed well and still achieved 8.13% growth under pressure from the catering market. Mainly, the company's major catering customer department has launched innovative products through measures such as improving product quality, improving process efficiency, and strengthening systematic customer service, which are loved by chain restaurant customers and end consumers. The company also continued to gain strength in e-commerce business, and direct-managed e-commerce (4.7%) achieved an increase of 60.12%. By product, the company's core category of frozen noodle rice products (accounting for 85.7%) fell 5.77% year on year, mainly affected by retail channels. Quick-frozen prepared food (accounting for 12.65%) increased by 2% year on year, showing steady performance. The refrigerated and short-term storage category (proportion) was smaller in volume, down 21.81% year on year. Subregionally, the decline was higher south of the Yangtze River (accounting for 46.87%), reaching 8.16%, while north of the Yangtze River (accounting for 53.13%) was more steady, with a decrease of 1.85%.

Gross profit margin declined, and cost investment increased

The company's Q2 gross profit margin was 24.87%, down 1.80 pcts year-on-year, mainly due to increased promotion intensity, especially retail channels, and the company's H1 gross margin in retail and innovation markets fell 2.29 pcts. In terms of expenses, the company's 24Q2 sales/management/R&D/finance rate changed year-on-year to +3.04/+0.01/+0.19/+0.10pcts. Among them, the increase in sales rates is expected mainly due to increased market expenses. Ultimately, the company's Q2 net profit margin fell by 3.30pcts to 7.32%.

The company's business boundaries continue to expand, actively adjust and respond to operating pressure. In recent years, the company has launched many new products. In 24 years, it has innovated and developed products based on consumers' preferences for healthy eating and delicious experiences, including Sanquan Golden Ratio gyoza. At the same time, the quick-frozen hot pot ingredients circuit has been expanded, and categories such as hot pot balls and beef and lamb products have been laid out. The company is also investing resources to open up the source supply chain system, and it is expected that popular hot pot shabu products will be created in the future. Judging from the channel, the company's catering channel is working well. As cooperation with major customers continues to deepen, the development of chain restaurants is also beneficial to further increase the share of the company's catering channel. Considering that there has been no significant improvement on the demand side, pay attention to subsequent companies' development of catering channels and the market performance of new categories.

Profit forecast:

Based on financial reports, we revised down some profit forecasts. We expect the company to achieve revenue of 7.079, 7.349, and 7.753 billion yuan in 2024-2026, and achieve net profit of 0.698, 0.745, and 0.809 billion yuan, corresponding EPS of 0.79, 085, and 0.92 yuan per share.

Risk warning:

1) Risk of rising raw material prices: There are many types of raw materials involved in frozen food. If the prices of some raw materials rise above expectations, it will put a lot of pressure on the company's profits; 2) The performance of new products falls short of expectations: the company needs to expand the scope of business and optimize the business structure through continuous promotion of new products. If the market performance of the company's new products falls short of expectations, it will affect the company's subsequent growth; 3) Channel expansion falls short of expectations: the company's supermarket channel has great advantages. In recent years, the expansion of channels such as distribution, catering, and online channels has increased. 4) Increased competition in the industry: The company faces strong competitive pressure in new business fields such as prepared dishes and new pastries. If competition intensifies further, it will affect the company's profitability.