Event: The company publishes its 2024 semi-annual report. According to the announcement, 2024H1 achieved operating income of 1.179 billion yuan, a year-on-year increase of 0.75%, achieved net profit to mother of -0.03 billion yuan, a year-on-year loss of 0.015 billion yuan, and realized net profit deducted from non-backward mother of 0.043 billion yuan, a year-on-year loss of 0.037 billion yuan. Looking at a single quarter, 2024Q2 achieved operating income of 0.454 billion yuan, a year-on-year decrease of 7.54%, and achieved net profit to mother -0.055 In billion yuan, a year-on-year increase of 0.005 billion yuan, realized net profit after deduction - 0.063 billion yuan, and a year-on-year loss reduction of 0.01 billion yuan.

Revenue analysis: Brewing to absorb inventory in the off-season, ready-to-drink adjustments are ready to go. The company achieved revenue of 1.179 billion yuan in the first half of the year, +0.75% (of which Q1: +6.76%; Q2: -7.54%). The slowdown in Q2 growth is expected to be mainly due to a slowdown in sales during the digestion of brewing inventory and ready-to-drink strategy sorting. Specifically; on the product side, the 2024H1 brew/ready-to-drink business revenue was 0.614/0.547 billion yuan, -2.13%/+3.83% YoY. H1 focuses on sorting out product positioning and development strategies. The milk tea business has formulated a “four modernization” strategy of “healthy categories, brand rejuvenation, product scenarios, and routine consumption” to increase research and development efforts for healthy milk tea products. It has now formed product reserves such as “raw leaf freshly brewed milk tea” and “raw leaf light milk tea”; the core products in the ready-to-drink business, Meco, such as fresh fruit tea, have positioned related tea stores, with differentiation such as cup packaging. H1 added “Xia Xing Jin Xuan” seasonal limited products and received good market feedback, Lan Fangyuan frozen lemon tea is positioned as “healthy and refreshing “Drinks” are currently still in the “0-1” development stage and need to continue to be cultivated.

On the channel side, 2024H1 dealer channel revenue was 1.017 billion yuan/YoY +2.91%, e-commerce channel 0.094 billion yuan/YoY -25.07%, export channel 0.01 billion yuan/YoY +15.31%, direct channel 0.04 billion yuan/YoY +26.40%. In the first half of the year, the company optimized and deployed the sales team and optimized the original brewing team to an all-category team, while the ready-to-drink team further focused on cities with greater sales opportunities. Channel operation efficiency is expected to be further improved. At the same time, the company is actively building model markets and strengthening channel construction. The main results are: 1) Some Meco fruit tea “home pack” and “gift pack” pilots performed well and are expected to expand promotion; 2) The number of dealers increased net by 244 to 1,775 companies from the beginning of the year; 3) Some products entered Zhao Yiming, which is very busy, and ends with Wanchen Group, etc. 7 There are more than 2w snack mass sales terminals covered by direct sales in the month; 4) Actively developing catering channels. By the end of June, more than 100 full-time ready-to-drink catering channel dealers had been developed; 5) Actively experimenting with new forms such as vending machines based on purchasing frozen resources, etc. By the end of July, the product had launched more than 0.09 million automatic vending machines, and the cumulative number of frozen stores (excluding vending machines) had increased significantly.

Profit analysis: Cost reduction, gross margin increased year-on-year, and reduction in government subsidies led to a decline in net interest rates. 2024Q2's gross margin was 25.71%, +2.13pct year-on-year, mainly due to reduced raw material procurement costs and freight costs, as well as internal cost reduction and increased efficiency. Expense side control was good. The cost rate during the Q2 period was 44.7%, -0.8 pct year on year, of which the sales expense ratio was 35.58%, -1.68pct year on year, mainly due to a decrease in marketing expenses and advertising investment. The management fee ratio was 11.90%, +1.2pct year on year, mainly due to the increase in equity incentive costs; the R&D cost rate was 2.46%, +0.68pct year on year, mainly due to the company's increased investment in R&D expenses. Additionally, H1 government grants were significantly reduced by 24.08 million, leading to a 3.3 pct year-on-year decline in other revenue/operating income in Q2, and the final Q2 net margin was -12.

1%, -1.88pct year on year.

Strategic plan for the second half of the year: launch new milk tea products and increase investment in ready-to-drink resources. 1) Brewing business, launch a new “raw leaf freshly brewed” milk tea product before the peak season, do a good job of marketing the new product and channel distribution; after entering the peak season, replicate the successful experience of promoting the gift packaging model market, actively do a good job in shopping and sales during the peak season, and promote product marketing; 2) The ready-to-drink business, strengthen resources and cost investment for fruit tea and frozen lemon tea, and combine new product positioning to strengthen online promotion and create a popular sales atmosphere. The channel side continues to improve channel operation management efficiency and enhance the frozen construction and vivid display of terminals.

Investment suggestion: In the short term, with the gradual clarification of product positioning and brand marketing strategies, the company has increased promotion and marketing since late June, and actions such as early channel construction and frozen investment have progressed in an orderly manner. The ready-to-drink business is expected to usher in volume growth in the second half of the year. At the same time, the brewing business will gradually enter a peak season, which is expected to drive the continuous improvement of the company's revenue and profit; in the medium to long term, the basic market for brewing business is stable, and the superimposed healthy upgrade is expected to usher in a new stage of development. The momentum for ready-to-drink products is expected to improve. Unfold and channel With diversified expansion and increased marketing and promotion efforts, it is expected that ready-to-drink performance flexibility will gradually be unleashed, and we are optimistic about the company's long-term development. Considering that Q2 revenue growth fell short of expectations and market consumption performance was weak, we adjusted our profit forecast. We expect the company's revenue to be adjusted from 4.209/4.861/5.513 billion yuan to 3.845/4.235/4.685 billion yuan in 2024-2026, up 6.1%/10.2%/10.6% year over year, and net profit to mother adjusted from 0.337/0.416/0.493 billion yuan to 0.315/0.363/0.423 billion yuan, up 12.2%/15.3% /16.

6%, maintaining a “buy-B” rating.

Risk warning: Market demand changes, industry competition intensifies, channel expansion falls short of expectations, product sales fall short of expectations, etc.