Incident: The company released its 2024 semi-annual report. 24H1 achieved revenue of 3.67 billion yuan, -4.9%; realized net profit due to mother of 0.33 billion yuan, or -23.8% year-on-year; realized net profit deducted from non-mother 0.27 billion yuan, or -29.6% YoY.

Among them, 24Q2 achieved revenue of 1.41 billion yuan, or -4.7% year on year; realized net profit of 0.103 billion yuan, or -34.6% year on year; realized net profit without deduction of 0.07 billion yuan, or -49.4% year on year; and the company's performance fell short of market expectations.

Revenue from C-end rice and noodles declined, and the restaurant market performed well. By product, 24H1's quick-frozen rice products achieved revenue of 3.14 billion yuan, or -5.8%; of these, traditional rice and noodle products represented rice dumplings, and rice dumplings achieved revenue of 2.06 billion yuan, or -7.8% compared to the same period, while new-style noodles achieved revenue of 1.08 billion yuan, or -1.7% year-on-year.

The growth rate of traditional pasta products is under pressure due to weak consumer demand for C-side frozen products in the off-season and the decline in passenger flow through supermarket channels. Quick-frozen prepared food and refrigerated short-storage products achieved revenue of 0.46/0.03 billion yuan respectively in the first half of the year, +2%/-21.8% over the same period. The slowdown in the growth rate of shabu-shabu products was mainly due to increased competition in the market. By market, the 24H1 retail and innovation market achieved revenue of 2.99 billion yuan, -7.5%; the catering market achieved revenue of 0.68 billion yuan, +8.1% over the same period. Catering achieved steady growth, mainly due to the continuous release of a series of new products launched by the company for chain catering customers. By channel, in the first half of the year, the company continued to reduce losses on direct-managed KA channels, while increasing efforts to develop online channels. The revenue growth rate of distribution/direct-operated/direct-managed e-commerce channels was -7.1%/-6%/+60.1% year-on-year, respectively.

Sales expenses increased significantly, putting pressure on profitability in Q2. The gross margin of 24H1/24Q2 companies was 25.9%/24.9%, respectively, -1.7pp/-1.8pp year-on-year; the gross margin pressure was mainly due to a decline in the share of high-margin C-side products. In terms of cost ratios, 24H1/24Q2 sales expense ratios were +0.9pp/+3pp to 12.6%/13% year on year, mainly due to companies actively increasing channel and product promotion expenses; 24H1/24Q2 management fee ratios remained flat, with -0.1pp/-0.04pp to 2.6%/3.8% year over year, respectively. Taken together, the company's 24h1/24q2 net interest rates were -0.2pp/ -3.3pp to 9.1%/7.3% year-on-year, respectively.

Demand is lackluster under the influence of the short-term environment, and medium- to long-term results are worth looking forward to. Looking forward to the future: 1) On the basis of maintaining the steady growth of traditional rice and noodles, product-side companies will increase their profit contribution rate through cost reduction and efficiency; at the same time, they will continue to increase their efforts to promote healthy and personalized new rice noodles, and new and sub-new products are expected to contribute to revenue growth; in addition, the company will comprehensively strengthen the hot pot food circuit and increase resource investment in hot pot meatballs and beef and lamb products. The shabu-shabu business is expected to continue to expand. 2) Channel-side companies actively promote direct management to reduce losses and steadily build distribution systems; at the same time, they are increasing the development of big B customers and the construction of small B-side social catering channels to continuously increase the penetration rate of the restaurant side; in addition, the company is actively speeding up the online channel layout, and e-commerce channels are expected to maintain high growth.

With the help of product innovation and channel expansion, the company's long-term performance is worth looking forward to.

Profit forecasting and investment advice. EPS is expected to be 0.74 yuan, 0.78 yuan, and 0.83 yuan respectively in 2024-2026. The corresponding dynamic PE is 14 times, 13 times, and 12 times, respectively, maintaining the “holding” rating.

Risk warning: The recovery on the restaurant side falls short of the expected risks, and the promotion of new products falls short of the expected risks.