Introduction to this report:

The performance was in line with expectations, and the mid-term dividend exceeded expectations. It is expected that dividends will remain high throughout 2024, and repurchases will be carried out simultaneously.

1H24 closed the store and lowered the profit forecast. The current stock price corresponds to 2024 PE 14X, maintaining the “gain” rating.

Key points of investment:

Investment advice: The performance is in line with expectations. Based on the consumer environment's pressure on individual stores and adjustments to the closing assumptions, the 2024/25 profit forecast was lowered to 0.93/1.0 yuan, the original value was 1.59/2.04 yuan, the 2026 EPS forecast was 1.11 yuan, combined with comparable company valuations, and the target price was lowered to 15.81 yuan (51.49 yuan). The current stock price corresponds to the 2024 dividend rate of 6.5%, giving a “gain” rating.

The performance was in line with expectations. The company's 1H24 achieved revenue of 3.34 billion yuan, -9.73%; deducted non-net profit of 0.281 billion yuan, +24.15%; achieved revenue of 1.644 billion yuan in a single quarter corresponding to 2Q24, -12.35%; deducted 0.125 billion yuan of non-net profit, +36.63% year-on-year; distributed a cash dividend of 3 yuan for every 10 shares in the middle of the company announcement. The performance was in line with expectations, the mid-term dividend exceeded expectations, and the company has carried out simultaneous stock repurchases.

The layout of offline stores closed online, and the decline in single stores narrowed: as of June 30, the total number of stores in mainland China was 14,969, a net decrease of 1193 in the first half of the year, or -7.38%. 1H24 customer traffic declined, single stores fell 2.55%, and the decline narrowed month-on-month. The company gradually changed from being mainly offline, with online as a complement to online and offline operations. The net closing of stores in 2024 mainly comes from stores in fourth- and fifth-tier cities added during the pandemic. Store profit is the focus of quality assessment.

Raw material costs declined, and gross margin improved markedly: 2Q24 gross profit margin was 30.55%, +8.21% year over year. The market price of raw materials for related duck by-products was on a downward trend; the sales expenses ratio was 14.18%, +6.79% year over year, mainly due to increased advertising expenses. The management fee rate was 10.88%, +4.1% year-on-year.

Risk warning: Increased competition and changes in the operating environment.