Revenue declined slightly, and fee control showed positive results, maintaining that the “buy” rating company 2024H1 achieved revenue of 0.353 billion yuan (-5.09% year over year, all below are year-on-year terms); net profit to mother of 0.101 billion yuan (+11.79%); net profit of 0.085 billion yuan (+9.79%) after deducting non-return to mother. 2024Q2 achieved revenue of 0.132 billion yuan (-20.35%); net profit attributable to mother 0.024 billion yuan (-14.05%); net profit after deducting non-attributable net income of 0.017 billion yuan (-22.11%). In terms of profitability, 2024H1 has a gross margin of 81.30% (-0.75pct) and a net margin of 28.61% (+4.32pct). On the cost side, the 2024H1 sales expense ratio is 44.27% (-0.16pct); the management expense ratio is 11.85% (+0.49pct); the R&D expense ratio is 6.57% (-0.58pct); and the financial cost ratio is -4.48% (-2.87pct). We are optimistic about the growth space brought about by the company's market channel expansion and maintain the profit forecast for 2024-2026. The estimated net profit to mother is 0.285/0.324/0.362 billion yuan, EPS is 1.44/1.64/1.83 yuan, and the current stock price is 13.9/12.2/11.0 times, maintaining a “buy” rating.

Sales of Ganoderma lucidum spore powder and dendrobium officinale products declined. The sales advantage in Zhejiang Province continued. The revenue of 2024H1's Ganoderma lucidum spore powder products was 0.232 billion yuan (-6.61%), gross margin was 86.49% (-1.28pct); revenue of dendrobium officinale products was 0.061 billion yuan (-5.95%), gross margin was 78.67% (-0.53 pct); revenue of other products was 0.054 billion yuan (+3.77%), gross margin was 72.58% (+3.58%) ( +2.21pct).

By region, revenue within Zhejiang Province was 0.246 billion yuan (+7.38%), revenue outside Zhejiang Province was 0.032 billion yuan (-24.68%), and Internet revenue was 0.069 billion yuan (-26.60%).

Market channels are expanding steadily, and industry-university-research cooperation is deepening

The marketing center of the 2024H1 company is restructuring the market outside the province, and management personnel are sinking the market, strengthening talent allocation and performance evaluation, while exploring market management reforms, optimizing the dealer and channel distribution environment, and strengthening product competitiveness. As of 2024H1, the company's market expansion has achieved good results, adding 7 specialty stores and 14 new channels, including 4 OTC channels and 8 medical channels. Furthermore, the company is actively carrying out project research with Academician Chen Jian's team from Jiangnan University, Peking University School of Basic Medicine, and Zhejiang Institute of Traditional Chinese Medicine, etc., which is expected to further enhance the product strength and competitiveness of core products.

Risk warning: Risk of market and policy changes, marketing development falls short of expectations, product sales fall short of expectations.