Incident: The company disclosed the results of the 2024 three-quarter report: in Q1-3 24, the company achieved revenue of 1.364 billion yuan, +2.7%; net profit to mother 0.082 billion yuan, -13.49% year over year; net profit after deducting non-return to mother 0.081 billion yuan, -1.25% year over year. Among them, 24Q3 achieved revenue of 0.472 billion yuan, -1.17%; net profit to mother 0.022 billion yuan, or -42.08% year-on-year; net profit after deducting non-attributable net profit of 0.023 billion yuan, or -23.54% year-on-year.

The conflict between supply and demand affected the sales pace of the main business. During the Q3 period, the company promoted new products and put in production capacity to save development potential, due to weak overall demand for frozen products and increased competition in the industry, etc.; in response to this, the company continued to promote new products (such as crispy pies, etc.) to consolidate large and small B-side shares. Compared to the low popularity of rice and noodles, it is expected that the growth momentum of dishes will be stronger, such as salted egg yolk lychee-shaped shrimp balls, which are suitable for multiple dining scenarios, introduced during Q3. Finally, at the end of Q3, the company put into operation the first phase of the Hebi Plant No. 1 workshop, laying the foundation for future large-scale expansion.

In terms of profit, the Q3 gross margin performance was steady, and rate increases dragged down the company's net interest rate performance. The Q3 gross margin was 22.44%, +0.04pct year-on-year, which is relatively stable overall. There was an increase on the cost side. The total rate for the four Q3 items was +1.73 pct year on year, while the sales/management/R&D/finance cost ratios were +0.81/+1.19/+0.15/-0.41 pct year-on-year, respectively. Finally, the Q3 company's net interest rate to mother was 4.71%, -3.33pct year on year. In addition to rising expenses, the year-on-year decline was influenced by factors such as a sharp decrease in government subsidies; during the same period, the company's net interest rate withheld from non-mother was 4.81%, -1.41pct year on year.

Short-term performance is under pressure, and Little B may be a gripper for future growth

Affected by weak demand for rice and noodles and increased competition, the company's large and small B-side channels continued to grow; among them, Big B faced pressure to adjust the food supply chain and optimize costs; in the Small B channel, the banquet scene was affected by low marriage and childbearing rates, and the social catering scene was slow to recover. However, in the medium to long term, the company's development model is still quite clear. The big and small B linkages are expected to continue to incubate big single products; moreover, the small B channel is expected to be the company's future growth gripper.

Profit forecast and investment advice: As Q3 results fell short of expectations, the company's net profit to mother in 2024-26 was reduced to 0.125/0.147/0.172 billion yuan (previous value was 1.45/1.76/2.1), respectively, -7%/+17%/+17%, respectively. Considering the company's excellent customer structure and high internal development potential, it maintains a “buy” rating.

Risk warning:

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