Matters:

The company released its 2024 three-quarter report. In the first three quarters of 24, revenue was 3.861 billion yuan, +28.49% year over year; net profit to mother was 0.493 billion yuan, +24.55% year over year; net profit after deducting non-return to mother was 0.424 billion yuan, +12.9% year over year.

Single Q3 achieved revenue of 1.402 billion yuan, +26.2% year over year; net profit to mother 0.174 billion yuan, +15.62% year over year; net profit of 0.151 billion yuan after deducting non-return to mother, +4.8% year over year.

Commentary:

High volume sales and Douyin laid the foundation for high growth. Large single product sales sped up, and Q3 revenue performance slightly exceeded expectations. By channel, Q3 sales and Douyin maintained high growth, while member store channels such as Sam continued to climb month-on-month, and quantitative distribution is expected to contribute significantly. At the same time, the company's large single konjac and quail eggs continued to rise month-on-month. In Q3, sales exceeded 100 million and 70 million respectively, and the category brands Daimao and Egg King accounted for 60% and 40% respectively, and Egg King occupied the first place in the category for a long time, and the product strength was fully verified.

Operating profit margins continued to expand, and changes in tax rates disrupted non-profits. 24Q3 gross margin was 30.62%, -2.32pcts year on year, mainly due to the increase in the share of channels with low profitability such as e-commerce and mass sales; the sales expense ratio was 12.13%, +0.3/-1.4pcts year over year, after excluding the impact on share payment fees, 11.41%, +0.5/-0.6pcts year over month. Considering the large changes in the channel structure and the month-on-month change in the fee ratio, it is more indicative. It is expected that the overall cost ratio will remain relatively stable, and overall growth will remain healthy. The 24Q3 management/R&D/finance expense ratio was/3.11%/1.37%/0.17%, -1.34/ -0.23/-0.17pcts year over year, mainly due to the dilution of scale effects. Other income accounted for 2.25% of revenue and +0.89pct year over year, further increasing profits. As a result, the 24Q3 operating margin was 14.84%, +0.18pct year on year. However, due to the comprehensive tax rate of 15.54%, a significant increase of +10.51 pcts year over year (23Q3 confirmed the increase in deferred income tax liabilities corresponding to temporary taxable differences in use-rights assets), which clearly dragged down profits, the company's 24Q3 net interest rate was 12.49%, -1.05 pcts year on year.

Based on channel expansion, categories are combined and relays. High revenue growth in the coming year is still guaranteed, and profitability is expected to be stable.

Currently, channel dividends are halfway through, and the market is concerned about the sustainability of high growth and profit stability. We believe that, first, the current mass sales store expansion has maintained a good momentum, the single store model has not deteriorated, and Yanjin continues to superimpose categories; second, Douyin channels continue to be explored to match organizational structures and categories, and the creation of large single products brings spillover effects, which will support the continued growth of e-commerce channels; third, quantitative distribution channel selection was gradually adjusted in July-August, which will contribute more incremental growth in the future, that is, the channel expansion itself can support the company's rapid growth. On this basis, the company's category expansion is progressing at an accelerated pace. Currently, monthly sales of konjac and quail eggs continue to rise, and the category brands Big Devil and Egg King are expected to increase further. At the same time, the company recently acquired Chinese snack segment companies with dried meat, fried food, and poultry to expand the category matrix. Existing channels can be highly reused, further enhancing the certainty of high growth. Considering that the company's upstream supply chain continues to deepen its layout, the downstream category brand building is progressing steadily, and the risk of channel price pressure is manageable. Although there are still cost investment requirements during the brand development period, profitability is expected to remain stable under high revenue growth.

Investment advice: High growth in the coming year will still be driven. Focus on the catalytic preparation for the Spring Festival and maintain the “strong promotion” rating. The company has anchored the medium-term goal of three-year doubling, laying the foundation for omni-channel expansion, relaying large single product volumes, and sufficient momentum for revenue growth. At the same time, the company's supply chain advantages continue to be consolidated and category brands continue to climb. The profit pressure is expected to be relatively manageable. Considering the Q3 tax rate disturbance, we slightly adjusted the 2024-2026 EPS forecast to 2.41/3.02/3.71 yuan (the original forecast was 2.43/3.06/3.76 yuan), and the corresponding PE was 22/17/14 times. The target price was 62 yuan, which is about 20 times the 25-year PE valuation. In the short term, preparations for the Spring Festival peak season are approaching, which is expected to bring positive catalytic effects and maintain the “strong promotion” rating.

Risk warning: Downstream channel price pressure risk, brand development still takes time, raw material prices fluctuate greatly, etc.