Brief performance review

On August 29, the company released its semi-annual report. 24H1 achieved revenue of 1.273 billion yuan, +12.89% year over year; realized net profit of 0.108 billion yuan, or -34.60% year over year; net profit after deducting non-return to mother was 0.099 billion yuan, -10.78% year over year. Among them, 24Q2 achieved revenue of 0.649 billion yuan, +10.29% year over year; realized net profit of 0.048 billion yuan, or -46.75% year over year; net profit after deducting non-return to mother of 0.047 billion yuan, -14.79% year over year.

Management analysis

Demand from major customers is steady, and the light cooking business continues to recover. 1) 24Q2 Compound Condiments achieved revenue of 0.301 billion yuan, +10.01% year over year, and still had steady growth under a high base (23Q2 +51.3% year over year). Downstream Western-style fast food chain customer stores continued to expand, and were resilient under the cost-effective consumption trend. 2) The 24Q2 light cooking solution achieved revenue of 0.291 billion yuan, +11.8% year-on-year, continuing the previous recovery trend. Mainly, companies are increasing random multi-channel operations and carrying out appropriate promotions. 3) 24Q2 dessert drink ingredient revenue was +3.0% year-on-year. The slowdown in growth is due to intense competition in the tea drink market and a decrease in customer customization demand. 4) 24Q2 distribution/direct channel revenue was 0.11/0.52 billion yuan, +6.2%/11.3% YoY. Among them, Kongke's offline team continued to expand, entering KA and O2O markets one after another, with a net increase of 58 sales customers in Q2.

Downstream restaurants reduce costs and increase efficiency and increase empty shipping costs, putting pressure on deducting non-net profit. 1) 24Q2 gross margin was 32.1%, -2.37pct year-on-year. The slight decline in gross margin is due to increased competition in the downstream food and beverage market. Part of the price war pressure is transmitted upstream, offsetting the cost side benefits. In addition, the light cooking business is expected to increase promotional activities through online channels, which will also have an impact on gross margin. 2) The 24q2 sales/management/R&D rate was +0.25/ -1.38/+0.26pct compared to the same period. The sales rate growth rate increased online investment, and the management rate optimization system effectively integrated resource scheduling between parent companies and subsidiaries. 3) There were one-time asset disposal income and demolition rewards during the same period. After excluding the impact, Q2 deducted non-net interest rate -2.12 pct year-on-year.

The company uses major restaurant chain customers as its basic market and actively expands channels to cope with C-side shocks. Revenue is expected to grow steadily throughout the year. The B-side mainly relies on two-wheel drive to “consolidate old customer share+expand new customer needs”, and is expected to grow steadily in the second half of the year. The idle market hedged pressure by optimizing prices and expanding new media channels, and has gradually resumed since this year. We are still optimistic about the company's accumulated customer advantages as a leader in Western-style polymodulation. New customer development and new product launch are expected to support performance recovery.

Profit Forecasts, Valuations, and Ratings

Taking into account the pressure on downstream demand and disruptions from non-recurring factors, we reduced net profit to mother by 36%/41% for 24-25. The company's net profit for 24-26 is estimated to be 0.23/0.26/0.28 billion yuan, respectively, or -24%/+12%/+11%. The corresponding PE is 20x/17x/16x, respectively, maintaining a “buy” rating.

Risk warning

Risks such as food safety risks; new product releases falling short of expectations; increased market competition.