Introduction to this report:

Guided by the company's “high-end cost performance” strategy, profit improvements have exceeded expectations, omni-channel growth has continued, offline distribution has completed the first round of marketing, and future growth can be expected.

Key points of investment:

Investment advice: Maintain an “Overweight” rating. Considering the scale effect, the company's rate optimization exceeded expectations, raised the 2024 EPS forecast to 1.02 (+0.03) yuan, maintained the 2025-2026 EPS forecast at 1.34 and 1.84 yuan, and maintained the target price of 31.39 yuan.

Profits exceeded expectations. The company released a performance forecast. It is estimated that 2024Q1-3 net profit to mother will be 3.38 to 0.342 billion yuan, +99.13% to 101.43%, after deducting non-return profit of 2.625 to 0.2695 billion yuan, +206.74% ~ 214.92%; of these, 2024Q3 single quarter net profit of 4810 to 52 million yuan, +200.45% ~ 224.81%, net non-return profit of 3,400 to 41 million yuan, year-on-year + 176.65% ~ 233.60% Profit before and after 2024Q3 has exceeded expectations, while omnichannel revenue continues to grow. Considering that the company's high-end cost performance strategy has been effective and will usher in the Q4 peak season, we expect the company to successfully complete the 2024 equity incentive target.

Stable gross margin verifies supply chain capability, and rate optimization contributes to profit flexibility. Under the company's “high-end cost performance” strategy, the supply chain layout of one product and one chain continues to be deepened. In the five major regional supply chain intensive bases in the country, the efficiency of direct raw material procurement, independent manufacturing, and logistics delivery is expected to continue to be optimized, helping the terminal's cost performance ratio to improve significantly but the overall gross margin is stable. Under the structure of a “networked organization” integrating the company's products and sales, the front and back end and various departments have fully collaborated, and the speed of market response has further improved. We expect the management fee rate and absolute amount to decline throughout the year. Under the company's “short video+omnichannel” collaborative approach, we expect short video channels such as Douyin to continue to grow relatively rapidly in 2024Q3. Comprehensive e-commerce will continue to grow better than the industry. In September, the company actively improved cost efficiency and rate optimization contributed to increased profits and flexibility under the scale effect of online channels.

Distribution adapted to products and channels, and the first round of offline daily sales was progressing smoothly. The company's offline gift box products cater to consumer trends under outstanding cost performance and maintain a high level of popularity in the terminal market. We expect that the company's gift box products will continue to grow well in the upcoming New Year holidays. In addition, the company's offline distribution channels promoted a new product layout for daily sales. The first round of sales was completed in September, and actual sales were formed. At this stage, the company is focusing on building benchmark markets and distributors, guided by actual terminal sales to ensure terminal profits and reasonable profit margins for dealers. The feedback on some potential categories of seed nuts, baking, and meat products is good. The company is expected to summarize and replicate successful cases in the first phase of product selection for experiential promotion, and contribute all new volume to the future.

Risk warning: increased market competition, rising raw material costs, food safety issues.