occurrences

On August 28, 2024, Zuming Co., Ltd. released its 2024 semi-annual report.

Key points of investment

Revenue continues to grow, and expenses increase due to market expansion

The total revenue of 2024H1 was 0.757 billion yuan (up 12% from the same period), mainly due to the company's continuous development and optimization of distributors/implementation of terminal market construction/new product promotion growth; net profit loss due to mother of 0.008 billion yuan (same decrease of 143%), net profit loss not attributable to mother was 0.009 billion yuan (same decrease of 154%). Among them, 2024Q2 total revenue was 0.376 billion yuan (same increase of 7%), net profit loss due to mother was 0.017 billion yuan (same decrease of 310%), and net profit loss of 0.018 billion yuan after deducting non-return net profit loss of 0.018 billion yuan (same decrease of 338%). The gross margin of 2024H1 decreased by 2 pct to 23.78%, and the sales expense ratio increased by 2 pct to 16.95%, mainly due to increased expenses for market development, promotion, etc.; the management expense ratio also increased 0.3 pct to 5.17%. Taken together, the 2024H1 net margin also decreased by 4pct to -1.96%.

Fresh soy products are growing rapidly, and distribution channels continue to expand

In terms of products, 2024H1 fresh soy products/vegetable protein drinks/casual soy products/other revenue was 5.15/0.1/0.039/0.083 billion yuan, respectively, up 15%/13%/2%/8% respectively. Bottled soy milk and corn juice led to an increase in revenue from animal and vegetable protein drinks. At the same time, the company focuses on developing regional specialty products, launching organic series and low purine series of new products to create high-quality products that meet health needs. In terms of channels, the revenue of the 2024H1 distribution model, direct sales model, and supermarket model was 0.492/0.093/0.152 billion yuan respectively, up 11%/29%/14%, respectively. The direct sales model is growing the fastest, mainly due to the increase in hometown chicken and e-commerce sales revenue. The company is actively seizing the empty market, focusing on expanding the Yangzhou region, strengthening the construction of moats in the Yangtze River Delta region, and using a small distribution model to increase sales. As of 2024H1, the number of the company's dealers in Zhejiang Province/Jiangsu/Shanghai/other regions was 956/592/199/374 respectively, a net increase of 51/53/24/80 compared to the beginning of the year.

Profit forecasting

The company is gradually forming a production line pattern based on fresh soy products, plant-based protein drinks and casual soy products as the development focus, and supplementing other types of products. We are optimistic about the improvement in operating efficiency after the company's channel model is changed. According to the semi-annual report, we adjusted the 2024-2026 EPS to 0.36/0.45/0.52 (previous value was 0.38/0.47/0.56), respectively. The current stock price corresponds to PE of 36/29/25 times, respectively, maintaining a “buy” investment rating.

Risk warning

Downward macroeconomic risks, mergers and acquisitions falling short of expectations, risk of rising raw materials, channel expansion falling short of expectations, new product promotion falling short of expectations, and lower than expected risk of employee shareholding and equity incentives.