Key points of investment

Incident: The company announced that the total operating income of 2024Q1-3 was 2.328 billion yuan, +15.31% year on year; net profit to mother was 0.333 billion yuan, +22.17%, after deducting non-net profit of 0.337 billion yuan, +23.05% year on year; total operating income of 2024Q3 was 0.574 billion yuan, +15.77% year on year; net profit to mother 38.0733 million yuan, +108.84% year on year after non-net profit 35.4483 million yuan, +71.85% year-on-year.

Q3 Revenue was in line with expectations, and the structure continued to be optimized. 1) By product: 24Q3's revenue of 300 yuan/100 to 300 yuan/100 yuan/100 yuan or less was 0.16/0.31/0.08 billion yuan respectively, an increase of 42.1%/14.9%/-24.3%, and the share of products over 100 yuan increased by 7 pcts. The company's Q2 off-season promoted channel regulation and price adjustments to promote channel inventory digestion to a healthy level before peak season; Q3 focused on year and soft series to promote rapid repayment growth. The two currently account for more than 50%. 2) Looking at the subregion: In 24Q3, revenue within and outside the province was 0.37/0.17 billion yuan respectively, up 4.4%/37.9% from the same period. The province continued to promote marketing transformation and consolidate the price system. The Q3 growth rate slowed month-on-month. The main companies focused on boosting the product structure and consolidating price performance after price increases, appropriately regulating the pace of delivery within the province. Revenue from 100 yuan products slowed in stages, and products over 100 yuan performed well in scenarios such as school receptions and wedding receptions in Q3. Markets outside the province insisted on building a template market, increasing C-side cultivation and investment. In 24Q3, there was a net increase of 13 dealers outside the province. We expect the integrated construction results of Gan Qingxin and Shaanxi to continue to show results in the future.

The main reason for the decline in gross margin was due to sales discounts, rate declines & donations confirmed an increase in net interest rates in advance. The net interest rate for 24q3 was +2.95pct year-on-year to 6.63%. The net interest rate flexibility was mainly due to the decline in sales rates and the impact of external donations. 1) Gross profit margin: In 24Q3, the year-on-year ratio was -1.5pct to 61.13%. Main line 1: the industry competition was fierce, and the company increased its promotional discount efforts accordingly; 2, raw material procurement costs increased slightly. 2) Expense rate: 24Q3 sales rate/management rate (including R&D) was -3.2 pct/-1.35 pct to 24.1%/16%, respectively. The main companies strengthened the accurate allocation and refined management of marketing expenses, and the cost efficiency ratio was clearly optimized. 3) Non-operating income and expenditure: In previous years, external donation expenses generally confirmed in Q3 were confirmed in advance of Q2, and Q3 non-operating expenses decreased by 0.012 billion yuan year-on-year

Profit forecast and investment rating: The company is stable and steady in the province, and the market share increase is basically in line with expectations. The results of marketing transformation outside the province have initially been shown. It is optimistic that the company's strategic execution and endogenous driving force will continue to expand. It is expected that it can be realized throughout the year. We basically maintain a net profit of 0.4/0.49/0.6 billion yuan for 2024-2026, with a year-on-year ratio of +22%, 21%, and 23%, respectively. The current market value corresponds to the 2024-26 PE of 26/21/17X, maintaining the “buy” rating.

Risk warning: Competition within the province intensifies, and development outside the province falls short of expectations; continued weakness in the economic environment affects product upgrades and food safety issues.