Description of the event

The company's 2024H1 gross revenue was 1.273 billion yuan (+12.89%), net profit to mother 0.108 billion yuan (-34.60%), after deducting non-net profit of 99.1557 million yuan (-10.87%). 2024Q2's total operating income was 0.649 billion yuan (+10.29%), net profit to mother 47.7002 million yuan (-46.75%), after deducting non-net profit of 46.7857 million yuan (-14.79%).

Incident comments

Looking at revenue by product, the year-on-year growth rate of compound seasonings is slowing down, and light cooking is growing faster. 2024Q2 compound seasoning 0.301 billion yuan (+10.1%), light cooking solution 0.291 billion yuan (+11.79%), beverage dessert ingredients 0.04 billion yuan (+3.04%), compound seasoning growth decelerated 27.70% month-on-month in 2024Q1, which is expected to be related to B-side demand pressure in catering; light cooking solutions are significantly accelerated, mainly due to 618 empty pasta investment; beverage and dessert ingredients are slightly accelerated month-on-month, but the three major business segments Businesses that are under the greatest pressure to grow at medium growth rates.

Looking at revenue by channel, the B-side market is basically stable, and the C-side market share is leading. 2024Q2 direct sales 0.521 billion yuan (+11.31%), non-direct sales 0.11 billion yuan (+6.2%). The company continued to increase R&D investment. In the first half of the year, the company's R&D expenditure increased 13.56% year on year, and the number of new product developments increased by more than 11% year on year compared to the same period last year. The subsidiary Kongke Network had revenue of 0.454 billion yuan (+2.59%) and net profit of 0.5572 million yuan in the first half of the year (19.0942 million yuan in the same period last year). According to data released by Euromonitor International, the national pasta retail sales volume of hollow pasta ranked first in the country for three consecutive years from 2021 to 2023.

Structural changes and the downturn in the downstream economy have put pressure on gross margins, and cost control results have been remarkable. The company's 2024H1 net profit margin fell 6.19pct to 8.52%, gross margin -2.7pct to 32.07%, sales expenses ratio (-0.47pct), management expenses ratio (-0.79pct), R&D expenses ratio (+0.01pct), and financial expenses ratio (+0.07pct). 2024Q2 net profit margin fell 7.87pct to 7.35%, gross margin -2.38pct to 32.1%, sales expense ratio (+0.25pct), management expense ratio (-1.38pct), R&D expense ratio (+0.26pct), and financial expense ratio (+0.06pct). Overall, the company's expenses are properly managed, and resource scheduling between beneficiaries and subsidiaries has been effectively integrated. The company's 2024H1 management expenses decreased by 14.74% year-on-year, and management efficiency improved. The total amount of non-current asset disposal and government subsidy proceeds before tax this year was 12.0912 million, compared to 72.5864 million for the same period last year, which had a significant impact on apparent profit.

Dividend return expectations are clear, and capital expenditure is targeted. The company plans to distribute a cash dividend of 1.50 yuan (tax included) to all shareholders for every 10 shares, with a dividend ratio of 55.30%. The cash dividend ratio for 2022 and 2023 was 46.43% and 49.83%, respectively, and the profit distribution policy maintained continuity and stability. The company plans to increase the total investment in the Shandong Baoxin fund-raising project to 0.299 billion yuan to increase production capacity planning for semi-solid condiments and agricultural products. At the same time, Guangxi Baoshuo has completed most of the preparation process, and will explore the upstream spice market and industrial chain layout opportunities in depth in the future.

Profit forecast and investment advice: The company's net profit for 2024-2026 is expected to be 0.235, 0.262, and 0.298 billion yuan, and EPS is 0.59, 0.66, and 0.74 yuan. Corresponding to the current stock price PE is 19, 17, and 15X, maintaining a “buy” rating.

Risk warning

1. Food safety risks;

2. The risk of fluctuations in raw material prices;

3. New product development and market competition risks.