Incident: On October 28, the company announced its results. In the first three quarters of 2024, revenue was 7.17 billion yuan, +56% year over year; net profit to mother was 0.34 billion yuan, +101% year over year. Among them, 24Q3 revenue was 2.09 billion yuan, +24% year over year; net profit to mother was 0.05 billion yuan, +222% year over year. In addition, the company issued three investment announcements. It plans to invest no more than 0.2 billion yuan, 0.1 billion yuan, and 0.36 billion yuan, respectively, to 1) build a snack supply chain and intensive base, 2) incubate new sub-brands, and 3) reach in-depth cooperation with iSnacks/Ai Discount/Health Foods, respectively.

24Q3 revenue continues to grow, and products and channels expand in multiple dimensions. Despite the slow pace of consumer recovery, the company insisted on responding to terminal demand with a high-end cost performance strategy, and 24Q3 revenue increased 24% year over year. On the channel, “D+N” collaboration was further consolidated, new offline growth poles were gradually formed, and the distribution of new products completed the first round of marketing. In terms of products, the reshaping of pallets and organizations is progressing rapidly, and daily sales have fully complemented the price range and scenario coverage, and the market response has been good. In terms of brands, consumers of the three squirrels main brands are mature; Fawn Blue and Blue has firmly established a new position as a “high-end healthy snack for children”, revenue and profit have both increased, and the brand matrix is seeking further development in a healthy way.

The rate was 2.5%, up 1.5pcts year over year. Looking at the specific breakdown, the gross profit margin was 24.5%, +0.1 pcts year over year. Profitability improved dramatically in 24Q3, and gross margin and expense ratios were optimized. The net profit of the 24Q3 company mainly benefited from improving the quality and efficiency of the supply chain, which enabled the company to achieve stable gross margin while implementing high-end cost performance. The sales expense ratio was 19.1%, -0.2 pcts year on year; the management fee ratio was 2.5%, -0.4 pcts year on year. The scale effect drove the continuous optimization of the rate.

In addition, the company issued three investment announcements to continue deepening the industrial layout. The three investments are 1) Upstream supply: it is proposed to further improve the construction of the East China Snack Industrial Park, the North District Supply Chain Intensive Base, and the Southwest Supply Chain Intensive Base to achieve the manufacturing layout of the supply chain from nuts to snacks, and the delivery layout from a single base to the five major intensive bases in the country. 2) Midstream products: It is planned to invest no more than 0.1 billion yuan in total through capital increases, loans, etc., to increase investment and incubate new sub-brands such as Big Names, Coach Dragonfly, Oriental Yan Jiusheng/Coco Guo, etc., focusing on categories such as convenient fast food/healthy and light food/nourishing diet/chocolate respectively. 3) Downstream channels: It is proposed to invest no more than 0.36 billion yuan in total, reach in-depth cooperation with iSnack, iDiscount, and Zhiyang Food, acquire control or related assets and businesses, and use the three squirrels brands, supply chains, and management capabilities to jointly expand the offline market and enter a new dairy beverage circuit.

The barriers to high-end cost performance are constantly being strengthened, and experience has been accumulated and transformed into new fields. In the short term, the Mid-Autumn Festival has verified the market demand for the company's nut gift boxes. Before the Spring Festival in 2025, the peak season can be expected in the fourth quarter; in terms of daily sales, offline distribution is expected to continue to contribute to the increase. In the long run, along with the continuous implementation of production bases and intensive bases, leading total cost and overall link efficiency will protect high-end cost performance and further deepen core competitiveness. The establishment of the company's management consulting company and investment announcements all sent signals of expansion, reusing the experience, existing resources and global capabilities accumulated through this cycle in new fields, and adding momentum to the three-year target.

Investment advice: Net profit from 2024 to 2026 is expected to be +82.6%/40.8%/33.2%, EPS is 1.00/1.41/1.88 yuan, and the corresponding PE is 27/19/14X. Considering the uncertain pace of downstream channel competition and expansion, the “careful recommendation” rating is maintained.

Risk warning: risk of increased competition; risk of new business expansion falling short of expectations; risk of food safety.