Incident: The company released its report for the third quarter of 2024. In a single quarter, it achieved operating income of 1.675 billion yuan, -13.29% year over year, net profit to mother 0.143 billion yuan, -3.33% year-on-year, after deducting non-return net profit of 0.143 billion yuan, or +2.11% year-on-year. 2024Q1-Q3 achieved operating income of 5.015 billion yuan, -10.95% year over year, net profit to mother of 0.438 billion yuan, +12.53% year over year, net profit of 0.424 billion yuan after deducting non-return net profit of 0.424 billion yuan, or +15.73% year over year.

Revenue from fresh goods products declined, and revenue from packaged products increased significantly. In 2024Q1-Q3, fresh goods products and packaged products achieved revenue of 3.868/0.355 billion yuan respectively, -13.31%/+79.66%, respectively. Among fresh goods, revenue from poultry, livestock, vegetables, and other products was 29.69/0.034/0.476/0.389 billion yuan, with year-on-year changes of -13.81%/+66.57%/-9.82%/-17.03%, respectively.

2024Q3 achieved revenue of 1.256/0.158 billion yuan for fresh goods and packaging products in a single quarter, -15.99%/+152.62% year-on-year, respectively. Among fresh goods, revenue from poultry, livestock, vegetables, and other products was 9.60/0.008/0.163/0.125 billion yuan, respectively, -17.47%/+3.48%/-6.38%/-16.76%, respectively. The company's 2024Q1-Q3 franchisee management/procurement business/supply chain logistics revenue was 0.054/0.244/0.371 billion yuan respectively, of which 0.02/0.061/0.131 billion yuan for the third quarter were respectively.

Revenue in North China grew steadily, with revenue in northwest China falling significantly in 2024Q1-Q3. Southwest/Northwest/Central China/South China/North China/Hong Kong, Macao, Taiwan and other markets were 6.34/0.60/14.81/10.71/0.892/0.691/0.078 billion yuan, respectively, up 2.23%/-51.20%/-17.33%/-9.67%/-11.56%/+6.06%/-22.47%. The revenue of 2024Q3 in a single quarter was 2.08/0.20/4.72/3.64/0.296/0.296/0.249/0.028 billion yuan in a single quarter, compared to -6.08%/-36.75%/-24.26%/-8.73%/-15.59%/+9.73%/-10.65%, respectively. Revenue increased in North China, and revenue in the rest of the region was generally under pressure. Among them, the decline in the northwest region was quite obvious.

Profitability has improved, and profit side performance has improved significantly

The company's overall gross margin for Q1-Q3 in 2024 was 30.56%, up 6.41 pcts from the same period last year; the net profit margin to mother was 8.74%, an increase of 1.82 pcts over the same period last year; the net profit margin after deduction was 8.46%, an increase of 1.95 pcts over the same period last year. 2024Q3's gross margin for a single quarter was 31.12%, up 5.35 pcts from the same period last year; net profit margin to mother was 8.52%, an increase of 0.88 pct over the same period last year; net margin after deduction of non-return to mother was 8.53%, up 1.29 pcts from the same period last year. In 2024 Q1-Q3, the sales expense rate/management expense rate/R&D expense ratio were 9.20%/6.63%/0.67%, respectively, an increase of 2.01/0.02/0.12 pct over the previous year. The 2024Q3 sales expense rate/management expense rate/R&D expense ratio in a single quarter were 9.75%/6.67%/0.65%, respectively, +2.36/ -0.06/+0.14 pct year-on-year, respectively. The company's net cash flow from Q1-Q3 operations in 2024 was 0.925 billion yuan, up 277.46% year on year (0.245 billion yuan in Q1-Q3 2023). The increase in cash flow was mainly due to reduced procurement volume of raw materials and lower procurement costs.

Combining multiple measures to reduce the impact, the combined cost dividend of management iterations is expected to lead to continuous optimization of profit margins. In a general environment where the overall demand side is weak, the company is expected to improve the company's profit margin level through diversified measures to reduce the impact of declining revenue. In the current social environment, the casual brine consumption scenario is expected to continue to expand. As a leading enterprise on the casual brine circuit, the company expects to further optimize the company's overall profit margin through continuous iteration of the management model and superposition of cost-side dividends.

Profit forecasting and investment advice

Based on the results for the third quarter of 2024, we lowered the company's net profit for 24-26. We expect the company's net profit to be 0.611/0.688/0.745 billion yuan for 24-26 (the previous 24-26 net profit was 0.814/0.945/1.068 billion yuan), corresponding to the current stock price PE of 18/16/15 times, respectively, to maintain the “buy” rating.

Risk warning

Raw material price fluctuation risk; risk of increased industry competition; food safety risk