Incident: On October 28, 2024, the company released the 2024 third quarter report. 24Q1-3 achieved revenue of 2.048 billion yuan, a year-on-year decrease of 15.2%, a year-on-year decrease of 0.21 billion yuan, a year-on-year decrease of 12.8%, after deducting non-return net profit of 0.2 billion yuan, a year-on-year decrease of 13.61%. 2024Q3 achieved revenue of 0.467 billion yuan, a year-on-year decrease of 15.04%, realized a net profit loss of 0.023 billion yuan, a year-on-year decrease of 53.27%, after deducting a loss of 0.026 billion yuan in non-return net profit, a year-on-year decrease of 64.54%.

Gross margin improved year over year: 24Q3 gross margin was 28.79%, up 0.12pct year over year.

The cost rate increased year-on-year: during the 24Q3 period, the cost rate was 36.72%, up 3.65 pct year on year, of which the sales expense ratio was 27.33%, the year-on-year increase was 2.1 pct, the management fee rate was 7.92%, up 1.04 pct year on year, the R&D cost rate was 1.41%, 0.23 pct year on year, and the financial cost ratio was 0.07%, up 0.28 pct year on year.

Profit margin declined year on year: 24Q3 net profit margin was -4.94%, down 2.2 pct year on year, deducted net profit margin was -5.6%, down 2.71 pct year on year.

By product: 24Q3 rice dumplings achieved revenue of 0.189 billion yuan, a year-on-year decrease of 36.66%; mooncakes achieved revenue of 0.189 billion yuan, a year-on-year increase of 21.66%. In the relatively dull Mid-Autumn Festival market, the meal series achieved revenue of 0.034 billion yuan, a year-on-year decrease of 20.45%, and egg products, pastries and others achieved revenue of 0.034 billion yuan, a year-on-year decrease of 11.81%.

Channel sub-channel: The 24Q3 chain channel achieved revenue of 0.069 billion yuan, down 16.25% year on year; e-commerce channel achieved revenue of 0.253 billion yuan, down 25.61% year on year; supermarket channel down 24.90%; dealer channel achieved revenue of 0.074 billion yuan, up 21.98% year on year; other channels achieved revenue of 0.031 billion yuan, up 15.43% year on year.

Organizational structure adjustment to focus on channels to improve efficiency. The company announced that the company has adjusted its organizational structure, changing the previous product-centered (zongzi, non-dumpling, chain division) to channel-centered, and establishing various departments such as chain divisions, trade business centers, e-commerce business centers, international business centers, Wuhan Food Company, and new business centers for major customers, which will improve management quality and operation management efficiency.

Investment advice: We expect the company's 2024-2026 revenue to be 2.26/2.466/2.593 billion yuan, respectively, -14.26%/+9.12%/+5.16%, respectively. The company is expected to achieve net profit of 0.164/0.181/0.19 billion yuan in 2024-2026, -0.93%/+10.13%/+5.04%, respectively. Corresponding to the 24-26 PE of 21.1/19.2/18.3X, maintaining the “recommendation” ratings.

Risk warning: risk of demand falling short of expectations; industry competition increasing risk; food safety risk