Incident: From January to September 2024, the company achieved operating income of 2.364 billion yuan, +5.84% year on year, net profit to mother 0.432 billion yuan, +34.96% year on year; net profit after deducting non-return to mother 0.389 billion yuan, +38.10% year over year. Among them, Q3 achieved operating income of 0.897 billion yuan, +10.93% year on year, net profit of 0.186 billion yuan, +64.79% year on year; net profit without return to mother of 0.179 billion yuan, +73.44% year over year, and the company's performance exceeded expectations.

Seasonings for Chinese dishes and condiments for sausages and bacon are growing rapidly. By category, the revenue from January to September for hot pot condiments/Chinese cuisine condiments/ sausage and bacon seasoning was 0.794/1.272/0.219 billion yuan, respectively, compared with -6.15%/13.50%/19.95%. Looking at the single quarter, the performance of hot pot seasonings was average. Medium blends and sausage and bacon seasonings were +18.07%/19.68%, respectively, while other products declined. In the first half of the year, the company launched a series of condiments for Chinese dishes, including grilled fish, barbecue seasoning, fresh tomato and sour fish sauce, etc. In the third quarter, the company took the opportunity to step up its efforts to promote new products. In addition, early channel reforms achieved certain results. Early accumulation was released during the peak season, leading to a return to double-digit revenue growth.

Food extracts are driving the growth of online channels. By channel, offline/online channel revenue in January-September was 1.967/0.394 billion yuan, respectively, -1.3%/+68.98%, respectively. Of these, Q3 offline/online channel revenue was +5.98%/55.38%, respectively. The company acquired Food Extract in the first half of last year. We speculate that Q3 Food Extract continued to have good growth this year, driving the company's online channel growth. The company's mergers and acquisitions of food extracts can better complement the company's online channels for small to medium B customers, and is expected to further empower offline small B customers in the future. The company has the ability to serve all B-side customers, from single stores to large restaurant chains, from online to offline.

A sharp drop in the cost ratio led to an increase in performance. The company's gross profit margin for January-September was 39.28%, +2.39pct year on year, and 38.83% for Q3, +0.77pct year on year. The increase in gross margin is, on the one hand, that most commodity prices have declined. On the other hand, the gross margin of the company's Chinese seasoning and winter seasoning is higher than that of hot pot base ingredients, and improvements in product structure have led to an increase in gross margin. Q3 Sales Expense Rate/Management Expense Ratio was 7.81%/5.19%, respectively, -7.78/0.73pct year-on-year, respectively. We speculate that the reduction in the sales expense ratio is mainly due to the company changing the method of investing sales expenses from front-end to dealers to full reduction promotions, which has improved the efficiency of spending expenses.

Company profit forecast and investment rating: The epidemic has cultivated the scenario where consumers go home to cook, the C-side consumption scenario for compound seasonings has been strengthened, user habits have been cultivated, and a good foundation has been laid for the increase in the penetration rate of repetition on the C-side. On the B-side, as restaurants pay more and more attention to efficiency, we believe that the penetration rate of remodulation is also gradually increasing, and the recovery of remodulation will be relatively more obvious in the context of a slow recovery in catering. The company's net profit for 2024-2026 is estimated to be 623, 6.94 million yuan, and 754 million yuan, respectively, and the corresponding EPS is 0.58, 0.65 and 0.71 yuan, respectively. The current stock price corresponds to the 2024-2026 PE values of 24, 22, and 20, respectively, maintaining the “recommended” rating.

Risk warning: industry competition pattern worsens; food safety incidents; raw material price fluctuations.