Incident: The company disclosed its 2024 semi-annual results: H1 achieved revenue of 1.273 billion yuan, +12.89% year over year; net profit to mother 0.108 billion yuan, or -34.6% year on year; net profit after deducting non-return to mother 0.099 billion yuan, -10.87% year on year. Among them, 24Q2 revenue was 0.649 billion yuan, +10.29% year over year; net profit to mother was 0.048 billion yuan, or -46.75% year over year; net profit without return to mother was 0.047 billion yuan, -14.79% year over year.

In addition, the company announced a semi-annual dividend plan: it plans to distribute a cash dividend of 0.15 yuan/share (tax included), accounting for about 55.3% of the semi-annual profit.

Q2 Businesses such as polymodulation and light cooking all achieved steady growth

By product, the company's revenue for Q2 compound seasonings, light cooking solutions, and beverage and dessert ingredients was +10.10%/+11.79%/+3.04%, respectively. Driven by R&D and innovation, the number of new 24H1 products developed increased by more than 11% year-on-year, such as brewed pasta and Disney's co-branded small box series, etc., and the contribution rate of new products to performance increased further. By channel, revenue from Q2 direct sales and non-direct sales channels was +11.31%/+6.20%, respectively, with sales customers increasing by 58 compared to the end of Q1; by region, the company's Q2 East China, South China, North China, Central China, Northeast China, Southwest China, and overseas regions were +16.57%/-14.11%/-25.23%/+1.40%/+3.60%/+46.28%/+76.84%/+9.36%; among them, East China was the company's core market and had high growth resilience during the same period.

The company's Q2 profitability is under pressure

In terms of profit, Q2's gross margin was 32.10%, or 2.38pct year over year. It is expected to be mainly due to increased downstream competition and price pressure from major customers to the supply chain. There was a decline on the cost side. The total rate for the four categories of Q2 was -0.81 pct year on year, and the sales/management/R&D/finance cost ratios were +0.25/ -1.38/+0.26/+0.06pct year over year, respectively; among them, the year-on-year decline in management expenses is expected to be mainly due to a decrease in employee remuneration. In addition, Q2's net interest rate to mother was 7.35%, or 7.87pct year on year, while Q2 company's net interest rate of non-return to mother was 7.21%, -2.12pct year on year; mainly due to a sharp year-on-year decrease in asset disposal income in Q2 non-recurring profit and loss, and minority shareholders' equity increased sharply year over year.

Driven by R&D innovation, the company continues to promote new products and explore incremental markets. First, due to weak downstream food and beverage consumption and increased B-side competition, Q2's restructured business growth decelerated month-on-month, but the base of major customers was strong. Especially driven by R&D innovation, the company developed new customers while expanding its share of existing customers, and the resuming business can be expected to resume growth. On the other hand, the company continues to expand categories, develop new scenarios and new customer groups around empty pasta, etc., and the growth potential of the light cooking business is gradually recovering. In addition, the company invested in the Shandong Baoxin project on the production capacity side and plans to increase production capacity planning for processing semi-solid condiments and agricultural products.

Profit forecast and investment advice: Due to pressure on the company's Q2 profit, the company's net profit for 2024-26 was reduced to 0.23/0.266/0.302 billion yuan (previous value was 2.83/3.36/3.98), respectively, -23%/+15%/+14% year over year. Maintaining a “buy” rating, considering that the company's BC side has potential for growth.

Risk warning:

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