Incident: The company released its 2024 three-quarter report. During the reporting period, it achieved revenue of 4.647 billion yuan, a year-on-year decrease of 8.27%, and realized net profit to mother of 0.435 billion yuan, a year-on-year decrease of 5.28%. It is estimated that 24Q3 achieved revenue of 1.627 billion, a year-on-year decrease of 12.53%, and realized net profit of 0.145 billion yuan, a year-on-year decrease of 13.43%. Revenue and profit performance fell short of expectations.

Investment rating and valuation: Considering the lackluster demand in the baking industry, the profit forecast is estimated to be 0.574, 0.636, and 0.702 billion yuan (0.605, 0.691, and 0.825 billion yuan in 24-26 years ago), respectively, with year-on-year increases of 0%, 11%, and 10%, corresponding to EPS of 0.36, 0.40, and 0.44 yuan (0.38, 0.43, 0.52 yuan before 24-26). The current stock price corresponds to 24-26 PE was 18, 16, and 15x, respectively, maintaining an increase rating. Looking at the long term: 1) The baking industry is a growing sub-sector that continues to be booming, and the short-warranty bread circuit has more potential for growth; 2) The company continues to expand production capacity to expand the market, enhance supply chain advantages and channel network advantages, and raise the market share level of the segment.

Demand is lackluster, and revenue performance is under pressure. By region, the year-on-year growth rates of 24Q1-Q3 in North China/Northeast China/East China/Southwest/Northwest/South China were -9.3%/-13.0%/-3.0%/-3.3%/-3.5%/-20.5%, respectively. Among them, North China/Northeast China/East China/Central China/Southwest/Northwest/South China were -13.9%/-7.8%/-3.1%/-10.3%/-3.6%/-30.2%, respectively. Due to the lackluster overall demand in the industry and the impact of population outflows from some regions, the revenue of core markets such as Northeast China and North China is clearly under pressure. The South China market is currently still in the adjustment stage, with the biggest decline.

Profitability remains stable. 24Q1-Q3 achieved a gross profit margin of 23.8%, with a year-on-year increase of 0.5 pct, of which 24Q3 gross profit margin was 23.2%, an increase of 0.2 pct year-on-year. The main reason was that the company's product sales strategy changed from revenue assessment to profit assessment.

The overall cost rate of the company is stable. The 24Q1-Q3 company's sales/management/R&D/finance expenses ratio was 7.9%/2.1%/0.4%/0.5%, respectively, -0.1 pct/flat compared to -0.1 pct/-0.1 pct/+0.2 pct, respectively. Among them, 24Q3 sales/management/R&D/finance cost rates were 7.9%/2.2%/0.2%/0.5%, respectively, +0.1pct/+0.1pct, compared with +0.1pct/+0.2pct/-0.3pct.

Overall, 24Q1-Q3 net interest rate increased 0.3 pct year on year to 9.4%, of which 24Q3 net interest rate was 8.9%, down 0.1 pct year on year.

The catalyst for rising stock prices: revenue growth accelerates

Core hypothetical risks: food safety issues, increased industry competition