Incident: The company released its 2024 semi-annual report. The first half of the year achieved operating income of 0.76 billion yuan, a year-on-year decrease of 14%; net profit to mother was 0.03 billion yuan, a year-on-year decrease of 27.1%. Among them, 24Q2 achieved operating income of 0.36 billion yuan, a year-on-year decrease of 17%; realized net profit to mother of 0.01 billion yuan, a year-on-year decrease of 63.8%.

The basic drink market is developing steadily, and Jun Yao Runying's growth rate is impressive. In the first half of 2024, probiotic drinks, probiotic foods, other beverages, and commodity supply chain businesses achieved revenue of 0.34 billion yuan (-5.1%), 0.09 billion yuan (+23.1%), 0.02 billion yuan (-10.5%), and 0.3 billion yuan (-28.1%), respectively. 1) Probiotic drinks: The basic market business is developing steadily, expanding segmented categories and optimizing the activation of old products, creating a national brand using domestic strains to ferment, and adding new GABA500 goodnight drinks. 2) Probiotic food: Jun Yao Runying achieved revenue and net profit increases of 89% and 166% respectively in the first half of the year, with impressive growth rates. Runying has obtained the A+ supplier qualification of one of the world's leading dairy companies and is looking forward to further expansion. 3) Supply chain: Expand new businesses such as high-end red wine and frozen seafood, and complete strategic contracts with important customers such as OLE, Market Opener, and Huazhu.

Improved gross margin. 1. 2024H1 achieved a gross profit margin of 29.9%, an increase of 5pp over the previous year, mainly due to a decrease in the price of raw materials such as bulbous powder and an improvement in the product structure. 2. In terms of cost ratio, 2024H1 sales expense ratio was 12.5%, up 1.4pp year on year; management expense ratio was 8.9%, up 2.6 pp year on year; R&D cost ratio was 2.1%, up 1pp year on year; financial cost ratio was -0.2%, up 0.2 pp year on year. 3. 2024H1 net profit margin was 4.7%, down 1.1 pp year on year.

Share buybacks are used to motivate employees to hold shares or share shares, demonstrating confidence in development. Starting in February 2024, the company will repurchase shares within 1 year. The estimated repurchase amount is 0.1-0.2 billion yuan, which will be used for employee stock ownership or equity incentives. The repurchase plan effectively enhances investor returns, reflects the company's confidence in future development prospects, and will improve the company's long-term incentive mechanism.

Profit forecast: The company's net profit for 2024-2026 is estimated to be 0.06 billion yuan, 0.09 billion yuan, and 0.12 billion yuan respectively, and EPS is 0.11 yuan, 0.15 yuan, and 0.19 yuan respectively, corresponding to dynamic PE of 44 times, 32 times, and 24 times, respectively.

Risk warning: risk of raw material price fluctuations; risk of production capacity release falling short of expectations; food safety risk.