The company's 1-3Q2024 revenue increased 1.95% year on year, and net profit to mother increased 2.04% year on year. The company announced the 2024 three-quarter report: 1-3Q2024 achieved operating income of 2.468 billion yuan, an increase of 1.95% year on year, achieved net profit to mother of 0.048 billion yuan, an increase of 2.04% year on year, and realized net profit without deduction of 0.023 billion yuan year on year, an increase of 10.20% year on year.

Looking at the single-quarter split, 3Q2024 achieved operating income of 0.774 billion yuan, a year-on-year increase of 2.56%, and realized net profit to mother of 0.005 billion yuan, an increase of 0.78% year-on-year, and realized net profit without return to mother of -0.007 billion yuan, compared to -0.003 billion yuan in the same period last year.

The company's 1-3Q2024 comprehensive gross margin decreased by 1.33 percentage points, and the cost ratio decreased by 1.30 percentage points during the period 1-3Q2024. The company's comprehensive gross margin was 26.07%, down 1.33 percentage points from the previous year. Looking at the single-quarter split, 3Q2024's comprehensive gross margin was 25.22%, down 1.07 percentage points from the previous year.

The 1-3Q2024 company's expense ratio for the period was 24.33%, down 1.30 percentage points from the previous year. Among them, the sales/management/finance expense ratios were 20.23%/3.18%/0.91%, respectively, with year-on-year changes of -0.96/ -0.20/-0.14 percentage points, respectively. The 3Q2024 company's expense ratio for the period was 25.78%, down 0.48 percentage points year on year. Among them, sales/management/finance expense ratios were 21.42%/3.47%/0.89%, respectively, with year-on-year changes of -0.20/-0.20/ -0.08 percentage points, respectively.

Online channels are developing rapidly, optimizing product marketing for O2O

In the first three quarters of 2024, the company opened 39 new stores and closed 45 stores. By the end of the third quarter of 2024, the company had 463 stores and had signed contracts to open 26 stores, all of which are expected to open in the fourth quarter of 2024. From a channel perspective, the company's fastest growing channel in the first three quarters was the e-commerce channel, and revenue also increased by 12.32%; from a product perspective, the company's fastest growing category in the first three quarters was the milk powder category, and revenue increased 7.78%. In 2024, the company actively expanded online channels, broadened Douyin's local lifestyle channel operations, and formulated popular products and marketing plans for the O2O instant retail channel.

Lower profit forecasts and maintain the “increase in holdings” rating

The company's performance fell short of our previous expectations, mainly due to the year-on-year decline in the company's gross margin. Considering that competition in the company industry is fierce and there is still some uncertainty about the future trend of the number of newborns, we lowered our forecast of 6%/10%/14% of the company's net profit to mothers for 2024/2025/2026 to 0.109/0.115/0.119 billion yuan.

The company's two brands have strong competitive strength in East China and Central China, respectively. Online channels are developing rapidly, and maintain “gain” ratings.

Risk warning: Competition within the industry intensified, store expansion fell short of expectations, and merger results fell short of expectations.