Incident: The company's 2024H1 revenue was 9.362 billion yuan, +2.98% year over year; net profit to mother was 0.17 billion yuan, -8.81% year over year; 2024Q2 revenue was 4.173 billion yuan, -0.24% year over year; net profit to mother was 0.022 billion yuan, or -53.78% year over year. The company plans to pay a cash dividend of 1.10 yuan (tax included) to all shareholders for every 10 shares and implement an interim dividend for the first time, with a dividend ratio of 40.78%.

The optimization and upgrading of stores has led to an increase in customer flow, and snack shops have been expanding steadily. 2024H1 revenue growth is mainly due to 1) The company optimized product quality and prices and improved store service and environment. Comparable store traffic increased 13.69% year-on-year, driving same-store sales growth; 2) Contributing to the opening of new stores in the second half of 2023. By product, fresh/food cleaning/department store 2024H1 revenue was 3.857/4.468/0.285 billion yuan, +4.37%/+4.23%/-8.91% year-on-year. By region, 2024H1 revenue within the province/outside the province was 7.102/1.509 billion yuan, +2.64%/+9.61% year-on-year. 2024H1 has a total of 1,097 stores (997/100 direct operations/franchises, net increase of 6/42), 8 Haohuixing discount stores, and 104 Yueji snack stores, of which 38 are directly managed.

Product cost performance has improved, and gross margin has declined slightly. The gross margin of the 2024H1 company was 23.57%, -0.52 pct year on year. The decline in gross margin was mainly due to the company reforming procurement methods and enhancing the product price advantage. Among them, the gross profit margin for fresh/food washing/department stores was 17.44%/19.17%/34.01%, +0.80/-0.25/ -2.66pct year on year, 18.93%/18.66% year-on-year, and +0.02/+0.21pct year on year. 2024H1 sales/management/R&D/finance expenses were 17.59%/1.89%/0.08%/1.38%, respectively, +0.00/-0.06/+0.00/-0.03pct, respectively.

Investment advice: The company is a leader in the regional economy. It has established strong channels and supply chain barriers in the core market Yanwei region. Shandong Province still has a lot of room to increase its market share against the Yanwei region. The loss situation of stores outside the province has been greatly improved, offsite expansion capabilities are gradually highlighted, and the medium- to long-term growth path is clear.

The company has entered a booming circuit of mass-selling snacks and discount stores, which is expected to open up room for further growth. We expect the company's net profit to be 0.242/0.287/0.329 billion yuan in 2024-2026, corresponding to PE20.8/17.5/15.3X, maintaining an “incremental” rating.

Risk warning: The risk that macroeconomic recovery falls short of expectations, expansion outside the province falls short of expectations, market competition intensifies, and new business formats fall short of expectations.