Revenue declined slightly. Expense promotions supported store sales, and maintained the 2024H1 report issued by “plus” rating companies. The first half of the year achieved revenue of 1.06 billion yuan, a year-on-year decrease of 7.5%, and realized net profit of 0.061 billion yuan, a year-on-year decrease of 26.6%; of these, 2024Q2 achieved revenue of 0.6 billion yuan in a single quarter, down 5.1% year on year, and achieved net profit of 0.028 billion yuan, a year-on-year decline of 39.5%. The company's expense investment protected the stable operation of franchisee stores. The consumption scenario recovered in the second half of the year and is expected to return to growth. The company is a leading brand in the halogen products industry. We maintain our profit forecast. We expect the company to achieve revenue of 1.95, 2.28, and 2.63 billion yuan respectively in 2024-2026, up 1.7%, 16.9%, and 15.0% year-on-year, achieving net profit of 0.1, 0.13, and 0.17 billion yuan, with year-on-year increases of 43.2%, 29.3%, and EPS 0.18 and 0.23 respectively , 0.31 yuan. The current stock price corresponds to PE of 34.9, 27.0, and 20.4 times, respectively, maintaining the “gain” rating.

Closing stores affects fresh goods business, waiting for the bottom of the industry to reverse

By product, the company's 2024H1 fresh goods products, packaging products, slaughter and processing, rice products, testing and other businesses achieved revenue of 6.71, 0.27, 0.26, 0.316, 0.001, 0.019 billion yuan, with year-on-year changes of -12.6%, -7.3%, +58.8%, +2.0%, +73.8%, and -18.5%, respectively. Among them, the fresh goods business was under pressure due to the impact of store operations. Rice products remained relatively stable, the slaughter and testing base was low, and the growth rate was relatively fast. As of 2024H1, there were 4,052 fresh goods stores, and 445 net stores were closed in the first half of the year. Looking at the subregions, the company achieved revenue of 0.471, 0.117, and 0.325 billion yuan respectively in 2024H1, with year-on-year changes of -4.93%, -25.79%, and +4.94%, respectively. Among them, the Guangdong region closed many stores, which had a great impact.

Gross margin benefits from falling costs. Expense promotion helped terminal store companies to have a gross margin of 30.0% in 2024Q2, an increase of 3.4 pct over the previous year. This is mainly due to the high price of duck raw materials last year, leading to a high cost base. It is expected that raw materials such as duck by-products will remain stable throughout 2024. The company's 2024Q2 sales expenses rate was 13.9%, up 3.2 pct year on year, mainly due to increasing promotion expenses such as online Meituan Douyin, etc., and improving offline store support and promotion; the management fee rate was 7.8%, up 2.1 pct year on year, mainly due to reasons such as brand investment promotion, increased brand consulting fees, increased discount prices for new base operations, and strategic reserve raw materials.

Risk warning: Food safety risk, raw material price increase risk, terminal demand affecting same-store operation risk.