24H1 continues strategic transformation, and we look forward to the subsequent release of adjustment effects

24H1 achieved revenue/net profit to mother/ net profit deducted from non-net profit of 3.89/0.02/0.01 billion, -2.5%/-87.4%/-94.0% (in line with the previous performance forecast, 24H1 net profit of 0.02-0.03 billion yuan), corresponding to 24Q2 revenue 1.43 billion, -10.4% year over year; 24Q2 net profit/net profit deducted from non-net profit -0.04/-0.05 billion (23Q2 was 0.04/0.02) billion). The decline in profits was mainly due to pressure on gross margins after price adjustments and the suspension of employee stock ownership plans to accrue one-time share payments. In order to adapt to changes in the market environment, 23Q4 lowered product prices in offline stores and optimized profit distribution to enable franchise channels. Currently, it is still in the process of refining the single-store model, focusing on initiatives such as seasonal products, current specials, and the introduction of cultural and creative products to improve single-store revenue and profitability.

Looking forward to the second half of the year, as the single-store model continues to be explored and optimized, and the supply chain continues to reduce costs and increase efficiency, it is expected that the effects of the adjustments will gradually be released. EPS is expected to be 0.32/0.36/0.41 yuan in 24-26, with reference to a comparable 24-year PE average of 36x (Wind agreed expectations), giving 36x PE in 24, with a target price of 11.52 yuan, a “increase in holdings”.

The store is still in the optimization period, and the price reduction is driving up the number of customer orders

24H1 e-commerce, offline franchise/direct management/group buying business sales (tax included) 18.4/1.14/1.07/0.29 billion, +1.1%/-17.3%/+5.5%/+40.0% (Q2 -9.7%/-18.8%/-0.7%/+17.7%).

H1 e-commerce and direct sales have maintained steady growth, group buying business has performed well, and franchise stores are still in a period of adjustment. Looking at the number of stores, the number of offline direct operations/franchises in 24Q2 was +28/-70 to 1026/2158 at the end of 24Q1, respectively. The overall store revenue is still under pressure due to price cuts, but the number of customer orders has increased. Currently, the company is focusing on store refinement, and it is expected that single-store restoration will drive business improvement. By region, 24H1 Central China/East China/Southwest/Southwest/South China/North China and Northwest/Other regions, revenue was 11.4/3.3/3.7/0.28/0.1/2.13 billion, -4.0%/-6.4%/-5.8%/-13.7%/+5.1% YoY.

Gross margin came under phased pressure after price adjustments, looking forward to subsequent improvements

24H1 gross margin was -2.6 pct to 26.4% year over year (24Q2 -2.3 pct to 26.3% year over year), of which 24Q2 online/franchise/direct/group buying business gross margin was +2.1/-6.0/ -5.5/-8.1 pct year over year. Mainly due to price adjustments, the gross margin was under a lot of pressure. On the cost side, the 24H1 sales rate was +1.2pct to 19.6% year over year (24Q2 +2.8pct year over year), which means that e-commerce drainage/store support costs were higher; the management rate was +0.4pct to 5.6% year over year (24Q2 +1.4pct year over year), which resulted in a one-time share payment fee after the termination of the employee shareholding plan. The net profit margin for 24H1/24Q2 was 0.6%/-2.7%, -4.1/-5.2pct year-on-year. Looking ahead to 24H2, the single-store model is still in a period of refinement and optimization, and we look forward to subsequent operational improvements.

Expect the results of the company's transformation to show and maintain the “gain” rating

Considering the large impact of the company's closure, we revised the company's profit forecast. We expect EPS of 0.32/0.36/0.41 yuan (previous value 0.45/0.50/0.56 yuan) for 24-26 years, and give 36x PE for 24 years, with a target price of 11.52 yuan (previous 16.20 yuan) to maintain “additional holdings”.

Risk warning: Increased industry competition, macroeconomic fluctuations, food safety issues.