Incident: On October 28, 2024, the company released the 2024 third quarter report. 24Q1-3 achieved revenue of 4.647 billion yuan, a year-on-year decrease of 8.27%, net profit due to mother of 0.435 billion yuan, a year-on-year decrease of 5.28%, after deducting non-return net profit of 0.414 billion yuan, a year-on-year decrease of 6.54%. 2024Q3 achieved revenue of 1.627 billion yuan, 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%, after deducting non-return net profit of 0.137 billion yuan, a year-on-year decrease of 15.79%.

YoY improvement in gross margin: 24Q3 gross margin was 23.17%, up 0.17pct year over year, and down 1.89pct month-on-month. We think it was mainly due to increased depreciation due to new equipment added to new factories.

The cost rate increased year-on-year: during the 24Q3 period, the cost rate was 10.71%, up 0.18pct year on year. Among them, the sales expense ratio was 7.87%, the year-on-year increase was 0.14pct, the management fee ratio was 2.15%, the year-on-year increase 0.19pct, the R&D cost rate was 0.21%, down 0.26pct year on year, and the financial cost ratio was 0.48%, up 0.11pct year on year.

Profit margin declined year on year: 24Q3 net profit margin was 8.92%, down 0.09pct year on year, net profit margin after deduction was 8.41%, down 0.33pct year on year.

By product: 24Q3 bread achieved revenue of 1.49 billion yuan, down 11.06% year on year, and mooncake achieved revenue of 0.126 billion yuan, down 18.07% year on year, mainly due to poor demand for Mid-Autumn Festival gifts.

By region: 24Q3 North China achieved revenue of 0.357 billion yuan, -13.90%, Northeast China revenue of 0.75 billion yuan, YoY -13.93%, East China revenue 0.513 billion yuan, -7.78% YoY, Central China revenue 0.055 billion yuan, -3.09% YoY, Southwest China revenue 0.168 billion yuan, YoY -10.33%, Northwest China revenue 0.107 billion yuan, YoY- 3.58%, revenue in South China was 0.114 billion yuan, -30.16% YoY.

Optional products continue to be promoted, channels are actively adjusted, and we look forward to the results of the reform. In terms of optional products, in order to meet the segmented and changing needs of consumers, the company has strengthened product R&D innovation. Since Q3, it has launched chocolate bean brownies, egg rolls, popped bread, pork floss rolls, etc., while also strengthening interaction with consumers through new media such as public accounts. In terms of channels, the company actively adjusted. The number of 24Q3 dealers was 975, a decrease of 5 compared to Q2, continued to optimize the dealer community, and actively embraced new channels such as Douyin. As the economy gradually recovers, we look forward to the results of the company's reforms and adjustments.

Investment advice: We expect the company's revenue for 2024-2026 to be 6.152/6.738/7.167 billion yuan, respectively, -8.97%/+9.52%/+6.37%, respectively. The company is expected to achieve net profit of 0.563/0.626/0.676 billion yuan in 2024-2026, -1.90%/+11.22%/+7.96%, corresponding to PE 18.4/16.5/15.3X for 24-26, maintaining the “recommendation” ” Ratings.

Risk warning: raw material prices are rising, industry competition is intensifying, demand for bread falls short of expectations, etc.