occurrences

On August 29, 2024, the company disclosed its 2024 semi-annual report. 1H24 achieved revenue of 1.912 billion yuan/ +10.29%, net profit due to mother of 58.45 million/ -26.98%, net profit of 50.44 million/ -30.99%. 2Q24 achieved revenue of 0.9 billion yuan/ +10.57%, net profit attributable to mother of 12.33 million yuan/conversion loss, after deducting net profit not attributable to mother - 16.17 million yuan/conversion loss.

reviews

Terminal demand pressure is increasing, and the opening of new restaurants is still climbing. 1H24's food manufacturing business revenue was 1.14 billion yuan/ +8.2%, with a gross profit margin of 29.0% /-2.2pct. Among them, mooncakes/frozen foods/other foods were +7.1%/-0.5%/+18.1%, respectively, and gross margins were 43.7%/29.3%/28.2%, respectively. It is estimated that the decline in gross margin is related to increased demand side pressure on frozen products and a rise in new production capacity. The 1H24 Food Service Division's revenue was 0.75 billion yuan/ +14.6%, with a gross profit margin of 18.8% /-4.7pct. Revenue growth benefited from the opening of new stores (1H24 Guangzhou Restaurant opened 3 new self-operated stores, already covering the four major first-tier cities in the north, and Tao Taoju added 6 new businesses, including the acquisition of 5 authorized restaurants and the opening of Guangzhou Tianhe stores). The decline in gross margin may be related to the increase in upfront costs of new stores, and the passenger flow is still climbing.

Gross margin declined, expense ratios fluctuated, and pressure on profitability increased in Q2. 1H24's comprehensive gross margin was 25.2% /-3.4pct, the sales expense ratio was 10.7% /-0.4pct, and the R&D expense ratio was 2.0% /+0.1pct. Among them, the comprehensive gross margin revenue was affected by the decline in gross margin of the two major businesses of food and catering, and sales and management expenses improved slightly year-on-year; in the case of a decline in gross margin, the net profit margin to the mother was 3.1% /-1.5pct, net profit margin after deducting non-return mother 2.6% /-1.6pct. Single Q2 gross margin/sales expense ratio/management expense ratio were -3.9 pct/-0.4 pct/+0.6 pct, respectively. The decline in gross margin increased month-on-month compared to Q1, and the management expense ratio increased year-on-year.

Investment advice

Currently, demand pressure on terminals is high, and improvements in quick-frozen food sales are progressing slowly. The company is actively expanding its catering business. It is expected that the profit margin of the store will improve after the customer flow of the new store rises. At the same time, it is optimistic about its effect on the food business in developing a customer base from outside the province. We expect 24E-26E to have a net profit of 0.5/0.61/0.7 billion yuan, -8.6%/+20.5%/+15.7% year-on-year, corresponding PE of 17/14/12X, maintaining an “incremental” rating.

Risk warning

Markets outside the province are expanding faster than expected, mooncake sales are under pressure, raw material prices are rising, etc.