Incident: The company disclosed its results for the third quarter of 2024: Q1-3 in '24, the company achieved revenue of 1.93 billion yuan, +9.72% year over year; net profit to mother 0.173 billion yuan, -28.01% year over year; net profit after deducting non-return to mother 0.159 billion yuan, -12.44% year over year. Among them, in Q3, the company achieved revenue of 0.657 billion yuan, +4.06% year over year; net profit to mother 0.065 billion yuan, -13.45% year over year; net profit after deducting non-return to mother 0.059 billion yuan, -14.95% year over year.

The Q3 light cooking and other businesses grew steadily, and the multiplexing business declined by product. The company's Q3 compound seasoning, light cooking solutions, and beverage and dessert ingredient product revenue were +0.70%/+9.64%/-5.69%, respectively. Among them, the light cooking business maintained a relatively rapid growth rate. It is expected that sales of C-side products such as empty pasta have improved mainly due to improvements in sales of C-side products such as empty pasta, while the polymodulation business is affected by weak demand for Big B restaurants. By channel, revenue from direct sales and non-direct sales channels in Q3 was +4.16%/+1.48%, respectively. Among them, the number of distribution customers increased by 51 compared to the end of Q2. Looking at regions, during the Q3 period, East China, South China, North China, Central China, Northeast China, Southwest China, Northwest China, and overseas regions were +5.5%/-18.27%/-19.86%/+11.86%/-2.84%/+69.35%/+90.42%/+12.51%. Among them, East China, as the company's core market, had high growth resilience.

A number of factors put pressure on the company's profitability in Q3

In terms of profit, the company's gross margin for Q3 was 31.28%, -1.06 pct year over year. There was an overall increase on the cost side. The total cost rates for the four items in Q3 were +1.01 pct year over year; among them, the sales/management/R&D/finance rates for the same period were +0.93/-0.07/+0.15/+0 pct, respectively. Finally, the Q3 company's net return interest rate was 9.9%, -2pcts year on year, and the net interest rate after deducting non-return to mother was 9.04%, -2.02pcts year over year; that is, in addition to pressure on gross margin and increased expense ratio, the company's Q3 minority shareholders' equity increased sharply year on year, leading to a decline in net interest rate to mother.

The company continues to develop new products and new customers to expand the incremental market

Due to weak downstream food and beverage consumption and increased competition, Big B customers are increasingly demanding supply chain cost management, which in turn has put a lot of pressure on the company to restructure its business growth. In response, the company focuses on R&D and innovation, consolidates the share base of the original major customers with new products, and at the same time actively develops new customers to find new volume.

As for the light cooking business, the company continues to expand categories, develop new scenarios, and new customer groups around empty pasta, etc., and its growth potential is gradually recovering; in particular, the company is actively promoting bakery products to cultivate a new growth curve.

Profit forecast and investment advice: Due to pressure on the company's Q3 profit, the company's net profit to mother in 2024-26 was reduced to 0.214/0.251/0.288 billion yuan (previous value was 2.3/2.66/3.02), respectively, -29%/+17%/+15% compared to the same period last year. Maintaining a “buy” rating, considering that the company's BC side has potential for growth.

Risk warning:

Food quality and safety, growth in major customers falling short of expectations, price fluctuations of major raw materials, etc.