Key points of investment:

Incidents. The company released its 2024 semi-annual report: 24H1 achieved total operating income of 1.468 billion yuan, net profit of 0.247 billion yuan, net profit of 0.247 billion yuan, +18.8% year-on-year, after deducting 0.21 billion yuan of non-net profit, +17.7% year-on-year; of these, 24Q2 achieved total operating income of 0.614 billion yuan in a single quarter, -6.8% year-on-year, and net profit of 0.071 billion yuan, net profit of 0.063 billion yuan. billion yuan, +6.1% compared to the same period last year.

Sales of hot pot condiments are under pressure, and online channels have performed well. By product: 24Q2 hot pot seasoning revenue was -22.9% to 0.198 billion yuan, which we think may be related to increased competition in the off-season market; Chinese cuisine maintained positive growth, +4.7% to 0.392 billion yuan. In 24, the company launched new products such as tomato sour soup fish, pickled pickled cabbage fish, and sauce-flavored hot pot to further improve the product matrix; revenue from other main businesses was -12.2%. By region: The base market revenue in the western region was +2.4%, while the southern/east/central/northern regions were +0.4%/-5.8%/-13.5%/-29.2%, respectively. Channel division: Online channels maintained rapid growth, +57.4% to 0.122 billion yuan in 24Q2. We believe or benefit from the good performance of food extract subsidiaries; offline channel revenue was -15.3% year over year. The company continued to promote excellent business promotion strategies, and the net number of dealers decreased by 33 to 3150 in 24Q2.

Reduced raw material costs and structural upgrades have boosted gross profit margins. The gross margin of 24H1/24Q2 was +3.33pct/+2.19pct to 39.6%/33.3%, respectively. We believe it mainly benefited from the reduction in raw material costs and structural upgrades. The gross margins of 24H1 Chinese Cuisine Seasoning/Hot Pot Seasoning/Sausage and Bacon Seasoning were 41.5%/39.0%/55.1%, respectively, compared with the gross margin of +2.85pct/+5.20pct/+1.51pct year-on-year, respectively. The company's net operating cash flow performance was good, with +81.44%/+147.71% year-on-year to 0.297/0.109 billion yuan in 24H1/24Q2, respectively.

Market spending will be strengthened, and non-net interest rates will continue to rise after deducting them. The 24H1 sales expense ratio was +1.12 pct to 14.4% year over year, mainly due to the advertising market cost rate +1.27 pct to 6.3% year over year, which we think may be related to the increase in promotion intensity; the management fee ratio was -1.17 pct to 5.8% year over year, and the main reason was the equity incentive fee ratio -1.32 pct year over year. The net profit margin for 24H1 was +2.24pct year-on-year to 16.8%. Expense rates were well controlled during the 24Q2 period. Sales/management expense ratios were -0.72 pct/ -1.39 pct to 10.7%/6.9%, respectively; the company's net interest rate to mother was -0.53 pct to 11.5% year over year, mainly due to the reduction in investment income (-59.2% to 0.012 billion yuan) and the increase in actual income tax rate (+3.05 pct to 16.7% year over year); deducted non-net interest rate +1.24 pct to 10.3% year on year.

Profit forecasting and investment advice. We expect the company's 2024-2026 EPS to be 0.52, 0.61, and 0.71 yuan/share, respectively. Referring to comparable company valuations, we gave the company 25-30 times PE in 2024, with a corresponding reasonable value range of 12.88-15.45 yuan, maintaining a “superior to the market” rating.

Risk warning. Prices of raw materials fluctuated greatly, industry competition intensified, etc.