Guangzhou restaurants released three quarterly reports: 3Q achieved revenue of 2.191 billion yuan (yoy +2.27%, qoq +143.57%) and net profit of 0.39 billion yuan (yoy -5.35%, positive month-on-month). Q1-Q3 2024 achieved revenue of 4.103 billion yuan (yoy +5.86%), net profit to mother of 0.448 billion yuan (yoy -8.87%), after deducting non-net profit of 0.434 billion yuan (yoy -8.54%). The company's main business revenue remained steady, and sales performance during the peak season of 3Q mooncakes showed resilience. Gross margin was somewhat hampered by increased promotion efforts, but the level of refined management improved, and the sales/management expenses ratio narrowed year-on-year, reducing the impact of the decline in gross margin.

The company's food business revenue performance in the province was steady in the third quarter. It continued to expand steadily and optimize the distribution channel layout. In the long run, there is potential for food channel expansion outside the province. The catering business strengthens the specialty label of Cantonese cuisine, and the growth potential is positive. We look forward to the increase in profits brought by the new restaurant after climbing the slope, which is expected to further consolidate the collaborative development of the two main businesses. Maintain an “Overweight” rating.

Mooncake sales were resilient during the peak season. Store expansion and preferential promotions dragged down gross profit 3Q24 food business revenue of 1.798 billion/yoy -0.5%. Among them, revenue from mooncake series/frozen food/other products accounted for 78.4/12.9/ 8.7% of food revenue, respectively, +0.5/-0.6/+0.1 pct.

Mooncake sales performance is steady. According to the company's announcement, as of the end of mooncake sales on August 15, 2024, the company sold a total of 13.74 million boxes/yoy +1.5% of its own brand mooncakes in 24 (compared with the lunar calendar date). 3Q's food service business revenue was 0.367 billion yuan/yoy +17.3%, benefiting from steady store expansion. According to the Shanghai Securities Investor Relations Interactive Platform, the company actively promotes online and offline channels during the peak mooncake season, reducing unit prices or reducing gross profit space, with a 3Q gross profit margin of 39.5% /yoy-2.8pct. The 3Q24 sales/management rate of the company was 7.3/ 6.7%, -0.9/-0.2pct year on year. The increase in efficiency partially offset the impact of the decline in gross margin.

Sales performance in Guangdong Province was steady, and the channel layout outside the province was orderly. Direct sales growth rate was strong in 3Q24. Direct sales/distribution and consignment sales revenue during the quarter were YOY+5.3/ -3.5%, respectively. 3Q24's food business revenue in Guangdong Province/ Domestic and Outbound of Guangdong Province/ Overseas sales revenue was +0.7/-2.3/ -24.8% year-on-year respectively, with steady sales performance in Guangdong Province (accounting for 72.1% of food business revenue). During the year, the company steadily deployed distributors and expanded its business contacts. The number of distributors in Guangdong Province/in and outside Guangdong Province/Overseas increased by 84/141/8 respectively, corresponding to 61 new dealers within and outside Guangdong Province in 3Q (vs 58 new in 3Q23), and the pace of layout was orderly. 1-3Q24

The target price is 17.75 yuan, maintaining the “gain” rating

Considering the 4Q23 mooncake revenue portion of the delay in confirming the high base, the momentum for category demand growth was not strong in 24-26, and the quick-freezing business may continue to be under pressure. It is predicted that EPS for 24-26 will be 0.89/1.06/1.22 yuan (previous value:

1.04/1.14/1.29 yuan), food/catering comparable company Wind unanimously predicted PE15/16X in 25 years, and the segmented valuation method gave food a target market value of 7.2 billion yuan (0.42 billion net profit/PE17x, premium price for established mooncake brands, considering the slowdown in growth, intensified competition, slightly weakening the premium rate) /food target market value 2.9 billion yuan (0.18 billion net profit/PE16x, giving parity), target price 17.75 yuan.

Risk warning: Travel recovery falls short of expectations; market competition intensifies; new business development falls short of expectations.