Incident Overview

The company achieved operating income of 3.34 billion yuan in the first half of the year, a year-on-year decrease of 9.73%; net profit to mother was 0.296 billion yuan, up 22.2% year on year; after deducting non-net profit of 0.281 billion yuan, an increase of 24.15% year on year. 24Q2 achieved operating income of 1.644 billion yuan, a year-on-year decrease of 12.35%; net profit to mother was 0.131 billion yuan, up 25.08% year on year; net profit after deducting non-return to mother was 0.125 billion yuan, up 36.63% year on year.

The company plans to pay a cash dividend of 3.00 yuan for every 10 shares in the medium term.

Analytical judgment:

Operations were under pressure in the first half of the year, and store adjustments were in progress

In the first half of the year, the company adhered to the business strategy of “deeply cultivating the duck neck business”, focusing on adjusting the structure of stores and franchisees, promoting brand upgrading and digital transformation, and striving to adapt to changes in the macro situation and the new pattern of the marinated food market. Revenue fell 9.73% to 3.34 billion yuan over the same period last year.

By business, marinated food sales/franchisee management achieved revenue of 2.809/0.034 billion yuan respectively in the first half of the year. The halogen products business was affected by demand and grew under pressure. The total number of stores in mainland China reached 14,969, and the total number of stores decreased by 981 from the end of last year. This is related to the company's store strategy adjustment. The company adjusted its store expansion strategy to optimize the single store model. The store adjustment is underway; in addition, the collection business/supply chain logistics/others achieved revenue of 0.183/0.239 /0.428 billion yuan, bringing a certain increase in performance.

By region, the Southwest/Northwest/Central China/South China/East/North China/Singapore, Canada, and Hong Kong and Macau markets achieved revenue of 4.26/0.4/10.08/7.07/0.596/0.443/0.05 billion yuan in the first half of the year, +0.23%/-56.33%/-13.63%/-10.15%/-9.40%/4.10%/-27.86%. Most regions are under pressure, and the Southwest region performed relatively well.

The 24Q2 company's operations are still facing certain difficulties, with revenue falling 12.35% year-on-year to 1.644 billion yuan.

Cost improvements realized, profit margins increased

On the cost side, gross margin increased by 7.0 pct to 30.3% year on year in the first half of the year. Mainly the price of raw materials such as duck side fell year on year, and cost pressure was greatly reduced. On the cost side, the company's sales/management/R&D/finance expenses rates were 8.9%/6.6%/0.7%/0.4%, respectively, compared with the same period last year. All expenses increased. Among them, the increase in sales expenses was mainly due to the year-on-year increase in advertising expenses. Decreased investment returns also had an impact on profits. Overall, although the company increased expenses to drive market sales in the first half of the year, the cost-side dividend was quite obvious, causing the company's net interest rate to increase by 2.3 pct to 8.9% year on year, and the corresponding net profit to mother increased 22.2% to 0.296 billion yuan year on year.

The cost side of 24Q2 benefited from the decline in the price of core raw materials. The company's gross margin increased by 8.2 pct to 30.6% year on year, but cost investment increased. Among them, sales expenses increased by 2.6 pct year on year. Overall, thanks to the release of pressure on the cost side, the company's profitability improved, net profit to mother increased 25.1% year on year to 0.131 billion yuan, and the corresponding net interest rate increased 2.4 pct to 8.0% year on year.

Focusing on intensive store-side cultivation, single-store model optimization can be expected

The company introduced mid-term dividends for the first time, which effectively gave back to shareholders and expressed the company's confidence and attitude towards long-term steady development.

In the first half of the year, the company switched from opening stores and expanding market share to intensive cultivation, actively promoting the restructuring and optimization of the single store model for stores and franchisees. With the implementation of the company's series of initiatives, the company's single-store model is expected to continue to be optimized; the core raw materials on the cost side all declined and gradually formed a trend year-on-year, which is expected to bring profit flexibility. Subsequent performance will improve quarterly, and the net interest rate can be expected to recover steadily.

Investment advice

Referring to the company's latest performance report, we lowered the company's 2024-2026 revenue forecast of 7.697/8.467/9.144 billion yuan to 6.898/7.45/7.897 billion yuan; lowered the 2024-2026 EPS forecast of 1.23/1.43/1.62 yuan to 1.02/1.18/1.34 yuan; PE corresponding to the closing price of 12.84 yuan on August 30, 2024 was 13/11/10 times, respectively, maintaining the “buy” evaluation grade.

Risk warning

Cost pressure relief falls short of expectations, new product promotion falls short of expectations, and industry competition intensifies