3Q24 net profit is in line with market expectations

1Q-3Q24 revenue was 7.169 billion yuan, +56.5%; net profit to mother was 0.341 billion yuan, +101.2% year over year; net profit without return to mother was 0.267 billion yuan, +211.6% year on year; of these, 3Q24 revenue was 2.1 billion yuan, +24% year on year; net profit to mother 0.052 billion yuan, +221.9% year on year; net profit without return to mother was 0.038 billion yuan, +210.1% year on year. 3Q24 net profit was in line with market expectations.

Development trends

3Q revenue was +24% year over year. We estimate that online channel revenue is still growing by double digits, and offline channels are growing faster. 1) Online channels: According to distribution data, the Squirrel Douyin channel's 3QGMV was nearly 26% year over year. We estimate that traditional e-commerce GMV declined slightly, and the overall online channel is still growing by double digits year over year. 2) Offline channels: According to our supermarket data (National Chain Store and Supermarket Information Network), 3Q's supermarket channel GMV was +40% year-on-year (sales volume was about +76% year-on-year). We expect the company's 3Q offline channel revenue growth rate to be higher than the company's overall.

Net profit margin for 3Q24 was +1.5ppt to 2.5% year on year. Among them, gross margin was basically stable year on year, and sales and management expenses ratio declined year on year. The 3Q24 company's gross profit margin was 24.5% (+0.1ppt/month-on-month +2.6ppt), which was stable overall. The 3Q24 sales/management expense ratios were -0.2/-0.4ppt, respectively. We expect this to be related to the company's overall organizational changes and personnel structure this year. We expect a high degree of incentive completion in 2024, and offline distribution channels are expected to gradually expand in 4Q24-2025.

The company announced the signing of an “Investment Intent Agreement” to invest in the acquisition of iSnacks, Ai Discount and Health Food companies to enhance the layout of offline snack stores and the dairy drink market. 1) It is intended to acquire the control or related business and assets of “iSnack” for no more than 0.2 billion yuan. According to the official website of iAi Snacks, as of the end of August this year, the number of Ai Snacks main stores increased to 1,800 (distributed in Hunan, Hubei, Jiangxi, Yunnan, Guizhou, Sichuan, Shaanxi, and Chongqing). 2) It is intended to acquire the control or related business and assets of “iDiscount” for no more than 0.06 billion yuan. According to the official website of Ai Discount, as of mid-May of this year, over 50 stores were popular in the Shanxi and Tianjin regions. The retail sales volume of the stores comprised about 30%/18%/15%/5%/15%/15%/17%/17% of retail sales. 3) It is intended to acquire the control or related business and assets of Anhui Zhi Yang Food for no more than 0.1 billion yuan.

Earlier, the three squirrels jointly launched the “Selection” nut drink series (including daily nut milk, coconut juice and other products) (according to Father Squirrel Zhang Liaoyuan's official video account).

Profit forecasting and valuation

We maintain our profit forecast for 24/25. The current transaction is 26.4/21.4 times the 24/25 P/E; considering the recent sector valuation increase, we raised our target price by 14.8% to 31 yuan/share, corresponding to about 31/25 times 24/25 P/E and nearly 17% share price upward space, maintaining an industry performance rating.

risks

Demand falls short of expectations, offline distribution channels fall short of expectations, increased competition, and food safety issues.