Event: Delicious Foods released its 2024 three-quarter report. In the first three quarters, the company achieved revenue of 5.015 billion yuan, -10.95% year-on-year, net profit to mother of 0.438 billion yuan, +12.53% year-on-year, and net profit after deducting non-return to mother of 0.424 billion yuan, or +15.73% year-on-year. Single Q3 achieved revenue of 16.75 yuan, -13.29% year over year, net profit to mother of 0.143 billion yuan, -3.33% year over year, after deducting non-return net profit of 0.143 billion yuan, +2.11% year over year.

Revenue side: The store side continues to adjust, and the 24Q3 revenue side is under pressure. 1) By product: 24Q3 fresh goods/packaging/franchisee management achieved revenue of 1.256/0.158/0.02 billion yuan, respectively, -16.0%/+152.6%/+4.2% year-on-year, respectively. Looking at further disaggregation, poultry, livestock, vegetables, and other products achieved revenue of 9.60/0.008/0.163/0.125 billion yuan, respectively, -17.5%/+3.5%/-6.4%/-16.8% compared with the same period last year.

Among them, fresh goods products are under heavy pressure from continuous adjustments on the store side and the external consumption environment. 2) Looking at regions: 24Q3 Southwest/Northwest/Central China/South China/East China/North China/North China/Overseas achieved revenue of 2.08/0.20/4.72/3.64/0.296/0.249/0.028 billion yuan, compared with -6.1%/-36.8%/-24.3%/-8.7%/-15.6%/+9.7%/-10.6%, respectively.

Profit side: Cost pressure continues to be released, and gross margin has increased. The 24Q3 company achieved a gross profit margin of 31.12%, +5.35pcts year-on-year. The 24Q3 sales expense ratio, management cost rate, and R&D expense ratio achieved 9.75%/6.67%/0.65% respectively, compared with +2.36/ -0.06/+0.14pcts, respectively. The company increased marketing investment to drive revenue to a certain extent (the absolute value of sales expenses in 24Q3 was +14.37% YoY). Furthermore, the company's credit impairment losses increased in 24Q3 (24Q3 credit impairment losses - $-3.27 million compared to +0.1 million yuan in the same period last year). Despite the weakening of the scale effect and the increase in cost investment, the company's net interest rate still increased due to improved gross margin. 24Q3 net interest rate/+1.29pcts year-on-year, respectively, to 8.52%/8.53% year-on-year.

Profit forecast: Considering that the company's stores are still in the adjustment period, the impact of the external economic environment is compounded. We expect the company to achieve revenue of 6.412/6.168/6.268 billion yuan in 24-26, with year-on-year changes of -11.70%/-3.81%/+1.64%, and net profit to mother of 0.503/0.595/0.66 billion yuan, respectively, +46.18%/+18.25%/+10.84%, EPS of 0.81/0.96/1.06 yuan/share, respectively, maintaining the “recommended” rating.

Risk warning: food safety risks, fluctuations in raw material prices, increased channel competition.