Matters:

The company released its 2024 semi-annual report, and 24H1 achieved revenue of 1.27 billion yuan, +12.9% year-on-year; realized net profit of 0.11 billion yuan, or -34.6% year-on-year. The Q2 Company achieved revenue of 0.65 billion, +10.3% YoY; realized net profit of 0.05 billion yuan, or -46.8% YoY.

The company announced a semi-annual profit distribution plan with a cash dividend of RMB 1.50 (tax included) for every 10 shares.

Commentary:

The reversal decelerated month-on-month, light cooking was slightly restored, and 24Q2 revenue was +10.3% year over year, in line with previous expectations. Looking at the split business, Single 24Q2's compound seasoning revenue was +10.1% year over year, and there was a decline compared to Q1. It is expected that the Spring Festival Big B preparation will increase significantly, and some Q2 inventory will still be digested. Light cooking solutions are +11.8% year over year, better than previous expectations. It is expected that related new products such as cooking packages and baking will contribute (0.45 billion yuan in revenue for the first half of the year, +2.6% year over year). Meanwhile, the beverage ingredients business was +3.0% year over year, and the performance was relatively stable under last year's high base. By channel, single Q2 distribution/direct sales revenue was +6.2%/+11.3% year-on-year, with a net increase of 58 dealers to 445, and the offline layout of retailer B and pasta continued to advance. Looking at the subregions, the company continued its steady performance in East China/South China/North China/Central China/Northeast China/Southwest/Northwest/Northwest/Overseas, respectively, +16.6%/-25.2%/+1.4%/+3.6%/+46.3%/+76.8%/+9.4% year-on-year, respectively.

Dragged down by idle business, the pressure to deduct gross profit and non-profit margins for single Q2 companies continued. The 24Q2 company's gross margin was 32.1%, or 2.4 pcts year over year. First, it is affected by product restructuring. Second, it is expected that industry competition will intensify and some businesses will be reduced and promoted at reduced prices. In terms of cost ratio, the management cost ratio of a single Q2 company was 1.4 pcts year over year, mainly due to the higher base last year due to adjustments in production capacity, inventory clean-up, subsidiary preparation, etc., while the sales/R&D/finance expense ratios all increased slightly, +0.3/+0.1 pcts year over year, respectively. Furthermore, the basic profit and loss were stable in the first half of the year. Compared with the 23H1 net interest rate of 4.3%, this is also the main reason for the decline in the company's overall profit.

Finally, the first consideration is that it received compensation from the government for demolition last year. The second is that the share of minority shareholders increased due to capital increases in the share of wholly-owned subsidiaries. The company's net interest rate for Q2 was 7.3%, -7.9pcts year on year, 7.2% net interest rate without return to mother was 7.2%, or 2.1 pcts year on year. The decline was basically consistent with 24Q1.

The B-side enhances its strengths and makes up for its shortcomings, and the C-side is expected to achieve more than double digit growth in revenue throughout the year. On the one hand, in the context of stabilizing the base of old products, the B side leverages the advantages of the R&D side, focusing on refining more new products. The number of new product developments increased by more than 11% year-on-year in the first half of the year, while complementing baking capacity and actively seeking more revenue growth. On the other hand, it adheres to share priority, maintains growth through price reduction, while optimizing operating ideas, focusing on rich category matrices, and introducing new flavors such as crayfish, golden powder and crab yolk to maintain consumer stickiness. Looking at the full-year perspective, the B-side has higher barriers to tailor-made meals, and the company is more sticky with major customers. The C-side still enjoys partial prosperity. The C-side prioritizes share and appropriately sacrifices profit to protect revenue. The revenue side is expected to continue to grow by double digits throughout the year. The profit side is expected to continue to grow by double digits. The profit side is expected to be slightly worse than revenue due to the expansion of subsidiaries and increased overall competition.

Investment advice: The B-side enhances its strengths and makes up for its shortcomings, prioritizes C-side shares, and maintains a “strong” rating. Catering competition has intensified under pressure, but with customer stickiness, industry barriers, and appropriate price in exchange for volume, the current company still enjoys local prosperity, and double-digit growth throughout the year is still certain. At the same time, the company's general manager's personal holdings have recently increased by no less than 5 million, further demonstrating confidence in development. Based on the interim report, we adjusted the 24-26 EPS forecast to 0.57/0.68/0.81 yuan (the original forecast was 0.72/0.83/0.96 yuan), the corresponding PE was 20/16/14 times, and the target price was 13.6 yuan, corresponding to 20 times PE in 25 years, maintaining a “strong” rating.

Risk warning: sluggish downstream demand; increased market competition; increased cost investment; food safety issues, etc.