Event: The company released its 2024 semi-annual report. In 2024H1, the company achieved revenue of 3.34 billion yuan, -9.73%; realized net profit to mother of 0.296 billion yuan, +22.20% year-on-year; realized deduction of non-net profit of 0.281 billion yuan, +24.15% year-on-year. Among them, Q2 achieved revenue of 1.644 billion yuan, or -12.35%; realized net profit to mother of 0.131 billion yuan, +25.08% year-on-year; and realized deduction of non-net profit of 0.125 billion yuan, or 36.63% year-on-year.

Stores continue to be optimized and adjusted, and we expect continuous improvement in store efficiency. 1) By business: Q2 halogen product sales/franchisee management/other business revenue was 1.4/0.02/0.19 billion yuan, respectively, compared to -9.8%/-27.1%/-26.2%, respectively. Looking at the revenue decomposition structure for halogen products, fresh goods revenue was -15.2% (of which: poultry/animal/vegetable/other products were -16.4%/+90.9%/-9.6%/-17.4%), packaging products were +111.1% year-on-year, growing faster; 2) Looking at the dismantling of stores, the total number of stores in 24H1 14,969, a net decrease of 981 compared to the end of 2023. We believe that the company is currently focusing on improving the quality of single-store operations, and will adjust and close some inefficient stores in the first half of the year. In terms of store effectiveness, on a large scale, single store revenue rebounded steadily in Q2. In July-August '24, store efficiency was on the rise. We expect store efficiency to continue to improve as the company's marketing activities advance.

As raw material costs declined, gross margin improved markedly in Q2. Expense investment increased, but gross margin improved even more, and profitability increased. The gross margin of 2024Q2 was 30.55% (+8.21pcts year on year), mainly due to a decrease in the cost of raw materials for duck & the high cost last year, and a low gross margin base (23Q2 gross profit margin 22.34%, -3.34pcts year over year). In terms of expenses: 24H1's sales/management/R&D expense rates were +1.83 pcts/+0.06 pcts/+0.11 pcts, respectively. Among them, 24H1 sales expenses increased 13.60% year over year, mainly due to increased advertising and consulting expenses. Looking at Q2 alone, the company's sales/management/R&D expense ratios were +2.62 pcts/+0.17 pcts/+0.08 pcts, respectively. Net interest rate/net non-return interest rate for 24Q2 was +2.38pcts/+2.73pcts year-on-year to 7.96%/7.62%, respectively.

The operation focused more on the main business, the cash flow situation was steady, and the first mid-term dividend increased shareholder returns. 1) In terms of the absolute amount of foreign investment: the book value of the company's 24H1 long-term equity investment/other equity instrument investment period was 2.533 billion/0.114 billion yuan respectively, +0.006/-0.079 billion yuan at the end of last year. Among them: long-term equity investment: 24H1 Slam Food/Nayun Restaurant (Shengxiangting) invested 0.02/0.012 billion yuan each, all related to the operation of the Braised Circuit. At 0.013 billion yuan, the company continues to implement the “investment sector does not increase quota & ratio+focus on the braised business investment layout” strategy; changes in investment in other equity instruments are mainly fair value changes; 2) Looking at the relative return of foreign investment: due to the influence of the external consumption environment, there is still some pressure on the profits of some chain investment projects, which poses a certain drag on investment income. Long-term equity investment income calculated by the 24H1 equity method was -0.008 billion yuan (23H1+0.003 billion yuan); 3) The first interim dividend increased shareholder return: the initial interim dividend was 0.3 yuan/share, corresponding to a cash dividend of 0.181 billion yuan, accounting for 61.45% of the mother's net profit.

Profit Forecast & Investment Suggestions: We believe that the company's business focus has changed, from the previous horse-racing scene to development to improve the revenue quality of single stores. In the short term, the number of stores has been adjusted and optimized to a certain extent, compounded by the weak external consumption environment, which has disrupted the company's revenue side performance. However, we believe that as a leading “channel+brand+supply chain” in the braised food industry, the company has deep barriers and carried out a strategic shift in a timely manner. We expect the market share to continue to increase with the subsequent restoration of single-store store efficiency. On the cost side, we believe duck side prices are expected to remain stable and low in the second half of the year, which will continue to contribute positively to the company's profit side. Furthermore, the company reduced external equity investment and capex expenses, and increased shareholder returns. We expect the company to achieve revenue of 6.751/6.585/6.797 billion yuan in 24-26, a year-on-year change of -7.03%/-2.46%/+3.22%, respectively, and net profit to mother of 0.616/0.666/0.738 billion yuan, respectively, with a year-on-year change of +78.90%/+8.17%/+10.76%, respectively.

The corresponding PE is 12.92/11.95/10.79x, maintaining the “recommended” rating.

Risk warning: Single store repairs fall short of expectations, fluctuating raw material prices, intensifying competition