Incident: The company disclosed the report for the third quarter of 2024. 2024Q1-Q3 achieved total operating income of 4.758 billion yuan (YOY +6.24%), realized net profit to mother of 0.626 billion yuan (YOY +23.79%), and realized deduction of 0.558 billion yuan (YOY +31.44%) of non-net profit. Looking at 24Q3 alone, the company achieved revenue of 1.859 billion yuan (YOY +3.72%), net profit to mother of 0.289 billion yuan (YOY +21.40%), and deducted non-net profit of 0.275 billion yuan (YOY +22.24%).

Revenue continued to grow in the third quarter of the single quarter, and profit performance was impressive. Looking at the first three quarters of 2024, on the gross profit side, the company's revenue increased 6.24% year on year, and gross margin increased 4.81 pct year on year (judging mainly due to declining raw material costs), so gross profit increased 26.35% over the same period last year. On the expense side, the cost ratio for the period increased by 1.22 pct year on year. Among them, the sales expense ratio (including R&D expenses rate) decreased by 0.24 pct year on year, and the financial expense ratio increased by 0.51 pct year on year. Furthermore, the income tax rate was 21.23% (up 5.00 pct year on year), so the net profit margin to mother increased by 1.87 pct year on year, corresponding final net profit to mother of 0.626 billion yuan (YOY +23.79%).

Looking at 24Q3 alone, on the gross profit side, the company's revenue increased by 3.72% year on year, and gross margin increased by 6.31 pct year on year (judging mainly due to the decline in raw material costs), so gross profit increased by 28.14% year on year.

On the cost side, the cost ratio for the period increased by 1.82 pct year on year. Among them, the sales expense ratio decreased by 0.55 pct year on year, the management expense ratio (including R&D expenses rate) decreased by 0.25 pct year on year, and the financial expenses ratio increased by 2.62 pct year on year. As a result, the net profit margin to mother increased by 2.27 pct year on year, corresponding to the final net profit to mother of 0.289 billion yuan (YOY +21.40%).

Products continue to be optimized, and new products continue to explore breakthroughs. In the first half of 2024, the company continued to focus on the melon seed and nut business, increasing trial sales and expansion of new products. Through continuous optimization of product strength and rapid market layout, sales have grown rapidly and gross margin has continued to rise. Through continuous product optimization, tea coated melon seeds have received good feedback from consumers. The company's high-end melon seed product “Kwai Zhen” achieved continuous sales growth through continuous product optimization and expansion of new channels such as high-end member stores and boutique supermarkets. The penetration rate of the company's daily nut roof box continues to increase, and sales of nut gift boxes continue to grow. The company continues to launch new nut products such as black truffle macadamias, nut coconut roasted oats, dark nut baked oats, etc. The overall growth in the nut category is relatively good. The company's strange flavor and peanut category achieved category breakthroughs through product strength improvement and channel expansion.

Continued intensive cultivation, omni-channel penetration rate continues to increase. The company continues to develop intensive channel cultivation, and counties and villages are sinking. As of the first half of 2024, the number of terminal outlets controlled by the company's digital channel platform was close to 0.37 million. The company accelerates the expansion of mass-selling snack stores, actively promotes the expansion of new channels such as member stores and catering channels, and continues to grow in revenue. The company's e-commerce continues to make breakthroughs through channels such as Douyin and Pinduoduo; overseas markets are deeply involved in the Southeast Asian market, channel penetration is deepening, and overall sales have increased.

Profit forecasting and investment advice. We expect the company's revenue for 2024-2026 to be 7.392/8.026/8.655 billion yuan, and net profit to mother of 1.002/1.112/1.243 billion yuan, respectively, corresponding to EPS of 1.98/2.19/2.45 yuan/share, respectively. Combined with the valuation of A-shares comparable companies, the company was given a PE (2024E) valuation range of 20-25 times, with a corresponding reasonable value range of 39.60-49.50 yuan, continuing to be given a “superior to the market” rating.

Risk warning. (1) Food safety risks, (2) downstream demand falls short of expectations, (3) market competition intensifies, (4) new products, new channels, and new market expansion fall short of expectations, and (5) fluctuations in upstream raw material cost prices and cost investment.