Incident: Zhongju Hi-Tech released its 2024 three-quarter report. 2024Q1-Q3 achieved operating income of 3.946 billion yuan, year-on-year net profit of 0.576 billion yuan, net profit of 0.576 billion yuan year-on-year, net profit after deducting 0.552 billion yuan, or +19.25% year-on-year, of which Delicious Fresh's revenue was 3.808 billion yuan, +0.47% year-on-year, and net profit to mother 0.557 billion yuan, +17.39% year-on-year; 2024Q3 achieved business Revenue of 1.328 billion yuan, +2.23% year on year, net profit to mother 0.226 billion yuan, +32.90% year on year, net profit without deducting back to mother 0.213 billion yuan, +27.66% year on year, of which delicious fresh revenue was 1.252 billion yuan, +2.79% year on year, and net profit to mother 0.206 billion yuan, +29.98% year on year.

There was some recovery on the revenue side in Q3. 1) By product: 2024Q3 soy sauce/chicken powder, cooking oil/other products were 7.41/0.181/0.13/0.147 billion yuan, respectively, +0.5%/+14.0%/-9.2%/-9.0%, the chicken essence chicken powder business growth rate was faster; 2) Looking at the subregion: 2024Q3 east/southern/midwester/northern revenue was 2.94/0.522/0.237/0.147 billion yuan, respectively, +8.6%/+1.2% /-12.9 %/ +2.5%, the eastern region is growing faster; 3) Number of dealers: 2,395 dealers at the end of 2024Q3, 420/332/698/945 in the East/South/Midwest/North regions, respectively. Net increase of 311 dealers compared to the beginning of the year.

The gross margin continues to rise, the sales expense ratio has improved, and the profit side has performed well. 2024Q3 achieved a gross profit margin of 38.82%, compared to +4.95pcts. We believe that the increase in the company's gross margin is mainly due to lower raw material prices, production costs, and logistics costs. On the cost side, the 24Q3 sales/management/R&D cost rates were -1.86/+1.10/-0.72 pcts year-on-year, respectively. Benefiting from the increase in gross margin and the improvement in sales expenses ratio, the company's 24Q3 net interest rate/net profit margin after deducting non-return to mother was +3.94/+3.19pcts year-on-year, respectively, to 17.05%/16.01%.

Profit forecast: The company is currently still in the reform and adjustment period. Considering the Spring Festival mistake last year, the 23Q4 base was low (-14.37% year over year), while the Spring Festival was earlier this year, and the channel preparation period was earlier to 24Q4, which provided some support for 24Q4 performance. The company is expected to achieve revenue of 5.29/5.731/6.388 billion yuan in 24-26, with year-on-year changes of +2.93%/+8.33%/+11.48%, and net profit to mother of 0.77/0.888/1.066 billion yuan, respectively, -54.62%/+15.30%/+20.07%, EPS 0.98/1.13/1.36 yuan/share, respectively, maintaining the “recommended” rating.

Risk warning: industry demand falls short of expectations, rising costs exceeding expectations, and channel development falls short of expectations.