Incident: The company disclosed its 2024 semi-annual results: H1 achieved revenue of 1.468 billion yuan, +2.95% year over year; net profit to mother 0.247 billion yuan, +18.79% year over year; net profit after deducting non-return to mother 0.21 billion yuan, +17.68% year over year. Among them, 24Q2 revenue was 0.614 billion yuan, -6.80% year over year; net profit to mother was 0.071 billion yuan, -10.90% year over year; net profit after deducting non-return to mother was 0.063 billion yuan, +6.07% YoY. Overall, H1 demand pressure and increased competition affected the company's business growth.

The main business hot pot seasoning & Chinese cuisine is under high pressure. Looking at products with high incremental sales through online channels, the company's Q2 sales of hot pot seasoning, Chinese cuisine seasoning, sausage and bacon seasoning, and other products were respectively -22.94%/+4.75%/-87.36%/-12.17%; among them, the performance of hot pot seasoning Q2 is sluggish in the off-season, while the growth of Chinese cuisine is also expected to slow down, and the overall sales progress of sausage and bacon seasoning is normal in winter; the overall sales progress of H1 products is normal; In '24, H1 launched tomato sour soup with fish and pickled peppers New products such as sauerkraut, fish, and sauce-flavored hot pot continue to expand the health product matrix. By channel, Q2 offline and online channel revenue was -15.32%/+57.37%, respectively.

Looking at the subregions, revenue for the eastern, southern, western, northern, and central regions in Q2 was -5.77%/+0.42%/+2.44%/-29.21%/-13.45%, respectively. Additionally, H1 East, South, West, North, and Central distributors changed +12/+20/-16/-35/+4 respectively.

Cost and cost improvements and product structure optimization drive continuous improvement in Q2 profitability. Q2's gross margin was 33.33%, +2.19pct year over year; it is expected mainly due to lower raw material prices and product structure optimization. Among them, the gross margin of H1's main business for Chinese cuisine reached 41.5%.

There was a decline on the cost side. The total of the four rates in Q2 was -1.22pct year on year, and the sales/management/R&D/finance expense ratios were -0.72/-1.39/+0.61/+0.28pct year-on-year respectively. Among them, the decline in management fee rates is expected to be mainly affected by the reduction in H1 equity payment fees. In addition, Q2's net interest rate to mother was 11.53%, -0.53 pct year on year, while Q2 company's net interest rate of non-return to mother was 10.26%, +1.24pct year on year; mainly due to the sharp decline in investment income in Q2 non-recurring profit and loss.

Fluctuations in demand affect short-term performance. The H2 peak season is expected to improve business. First, 24H1 is affected by weak demand, downgraded consumption, and increased competition, and the company's main businesses such as hot pot seasoning and Chinese cuisine are all facing significant growth pressure. Among them, hot pot seasonings show very weak characteristics in the off-season, but the company continues to promote new healthy products, and it is expected that the peak season may improve in the second half of the year; Chinese cuisine is relatively resilient in growth, but it is still hampered by insufficient demand. In the medium to long term, the company's complex sector effect is good, the main business growth logic is smooth, and mergers and acquisitions have created a new B-side curve.

Profit forecast and investment advice: Due to pressure on the company's Q2 performance, the company's net profit to mother in 2024-26 was reduced to 0.545/0.632/0.721 billion yuan, respectively (previous value to 5.76/7.00/8.26), +19%/+16%/+14%, respectively. Maintaining a “buy” rating due to the company's high internal development potential.

Risk warning:

Food quality and safety, growth in large single products falling short of expectations, price fluctuations of major raw materials, etc.