1H24 profit is in line with market expectations

1H24's revenue was 5.075 billion yuan, +75.4% year over year; net profit to mother was 0.29 billion yuan, +88.6% year over year; net profit without return to mother was 0.228 billion yuan, +211.8% year over year. Among them, 2Q24's revenue was 1.43 billion yuan, or +43.9%; net profit due to mother was 0.019 billion yuan, compared to the same period last year -0.038 billion yuan; net profit without deducted mother was 0.03 billion yuan, compared to 0.063 billion yuan for the same period last year.

1H24's online and offline revenue accounts for about 8:2. online short video e-commerce sales volume is significant, and offline distribution channels generate 0.669 billion yuan. 1) Online channel: 1H24's online revenue was 4.09 billion yuan, accounting for 81% of total revenue. The revenue of Douyin, Tmall, and JD from online channels was approximately 1.22/1.08/0.79 billion yuan respectively, +180.7%/+28.3%/+20.3% year-on-year, respectively. Short video TV has positioned itself as a “new type of engine” to mass-sell a variety of explosive products such as dried mangoes, buffalo milk and millet toast, quail eggs, and spicy braised gift packs, achieving an increase of nearly 1 billion yuan. 2) Offline distribution channels: 1H24 has a revenue of 0.669 billion yuan (accounting for 13.2% of total revenue, 1,062 dealers). It focuses on roasted goods and snacks, and has created more than 100 exclusive daily sales pallets. Currently, it has been officially introduced into the terminal market one after another. At the same time, they have cooperated with mass sales discount systems such as Mingming's Busy, Preferred Snacks, and Good Deals. Note: Calibration transferred “platform distribution”, which was originally part of the offline distribution business, to integrated e-commerce. 3) Offline stores: There were a net opening of 60 1H24 national snack stores. As of the year, 209 stores contributed 0.175 billion yuan in revenue; the total number of 1H24 restaurants and affiliate stores closed 150. As of the middle of the year, there were 116 stores with a total revenue of 0.055 billion yuan.

Earnings in the 2Q24 off-quarter continued to improve year over year. 2Q is a relatively low season, and generally promotions are relatively intense, so losses often occur. The net interest rate of the 2Q24 company was about -1.3% (loss of about 0.019 billion yuan), which is still an improvement compared to the 2Q23 loss of 0.038 billion yuan. Based on the 1H24 situation, the company deducted the non-net interest rate of 4.5%, +2.0ppt year over year, of which gross margin increased by 1ppt to 25.8% (of which the gross profit margin of the nut category was 26.55% +1.54ppt), and the management expense ratio was -2ppt to about 2%.

Development trends

Looking forward to 2H24: We expect offline channel reforms to expand in the future, and online channels will continue to use traditional festivals to expand. Offline channel adjustments are mainly on the organizational side and product side: on the one hand, the product side strengthens the nut gift box product matrix and price range in offline products, and on the other hand, focuses on the daily casual snack category (there are nearly 100 product SKUs to choose from), and the overall product highlights the cost performance ratio.

Profit forecasting and valuation

We have kept our 24/25 net profit forecast unchanged. The current share price is trading at 17.7/14.3 times P/E in 2024/25. Considering that the overall valuation of the casual snack industry has been lowered, we lowered our target share price by 25% to 22.5 yuan/share, corresponding to about 22.5/18.2 times P/E in 2024/25, which has 27.1% upside compared to the current price. Maintain an outperforming industry rating.

risks

Offline channel distribution volume falls short of expectations, online channel competition intensifies, and food safety risks.