There is still pressure on same-store operations, and profit benefit costs have declined. The 2024H1, which maintained an “increased” rating company, achieved revenue of 3.34 billion yuan, a year-on-year decrease of 9.7%, and realized a net profit of 0.296 billion yuan, an increase of 22.2% over the previous year; of these, 2024Q2 achieved revenue of 1.64 billion yuan, a year-on-year decrease of 12.3%, and achieved net profit of 0.131 billion yuan, a year-on-year increase of 25.1%. We maintain the company's profit forecast for 2024-2026. We expect to achieve net profit of 0.68, 0.79, and 0.9 billion yuan respectively, up 98.3%, 16.2%, and 13.4% year-on-year. The current stock price corresponds to PE of 11.4, 9.8, and 8.6 times, respectively. As an industry leader, the company is expected to gradually improve store operations in the future, and companies in the food ecosystem will recover steadily and maintain a “gain” rating.

The number of stores has shrunk, and revenue has declined

The company's 2024Q2 revenue fell 12.3% year on year, and the same store side was under relative pressure. In terms of number of stores, as of 2024H1, the number of mainland stores was 14,969, compared with 981 net sales at the end of 2023. It is expected to maintain prudent store expansion in the second half of the year. By category, 2024Q2's poultry, livestock, vegetables, other fresh goods, packaging products, franchisee management, and other main businesses achieved revenue of 9.5, 0.1, 1.6, 1.4, 0.14, 0.02, 0.19 billion yuan, year-on-year changes of -16.4%, +90.9%, -9.4%, -17.4%, +111.1%, -27.1%, and -26.2%; among other main businesses, the 2024H1 collection and supply chain logistics business achieved revenue of 0.18 and 0.24 billion yuan respectively yuan. Looking at the subregions, 2024Q2 achieved revenue of 2.0, 0.2, 4.7, 3.6, 0.3, 0.24, and 0.02 billion yuan respectively, with year-on-year changes of -1.6%, -58.9%, -20.5%, -10.1%, -12.3%, +7.4%, and -29.6%. In terms of the ecosystem, the company focuses on braised racing tracks, and all brands operate steadily.

Cost dividends contribute to profits, and publicity expenses have increased

2024Q2's gross margin was 30.6%, up 8.2 pct year on year. Mainly due to a marked improvement in the price of duck raw materials, the gross margin of 2024Q1 was 30.0%, which continued to recover in the second quarter. The company's 2024Q2 sales expense ratio was 10.0%, an increase of 2.6 pct over the previous year, mainly due to an increase in advertising expenses; the management expense ratio was 7.0%, which remained relatively stable. In terms of investment income, the company achieved income of 0.011 billion yuan in 2024Q2, a year-on-year decline of 12.7%, while in 2024Q1, a loss of 0.014 billion yuan, successfully reversed the loss from month to month. The company's net profit for 2024Q2 was 0.131 billion yuan, up 25.1% year on year, achieving steady growth.

Risk warning: Food safety risk, raw material price increase risk, weak external consumption power affects demand risk.