Zhongju Hi-Tech announces the report for the 3rd quarter of 2024. 1-3Q24's revenue was 3.95 billion yuan, down 0.2% year on year, net profit due to mother 0.58 billion yuan, net profit deducted from non-mother 0.55 billion yuan, +19.3% year-on-year. 3Q24's revenue was 1.33 billion yuan, +2.2% YoY, net profit to mother 0.23 billion yuan, +32.9% YoY, net profit not attributable to mother 0.21 billion yuan, +27.7% YoY. The company's internal reforms continued to advance, and the profit side performed well in the 3rd quarter, maintaining the “gain” rating.

Key points to support ratings

The growth rate of Delicious Fresh improved sequentially in the 3rd quarter, and internal reforms continued to advance. The 1-3Q24 corporate headquarters achieved revenue of 3.95 billion yuan, or -0.2% year over year, of which Delicious Fresh revenue was 3.81 billion yuan, +0.5% year over year. 3Q24 Delicious Fresh's revenue growth rate was +2.7%, an improvement from month to month. The company's internal reforms continued to advance. Prices for some products were raised in the 3rd quarter, while channel inventory was actively controlled, and the main condiment business gradually stabilized. (1) By product, 3Q24 soy sauce products resumed growth, with revenue of 0.74 billion yuan, +0.5% year-on-year, accounting for 61.8% of the main condiment business. Chicken essence and chicken powder achieved rapid growth, with revenue of 0.18 billion yuan in the 3rd quarter, +14.0% year on year, accounting for 15.1% of revenue, up 1.9 pcts year on year. Edible oil revenue was 0.13 billion yuan, -9.2% year over year, and revenue from other products was 0.15 billion yuan, -9.0% year over year. (2) Looking at the subregion, with the exception of weak regions in the central and western regions, where revenue declined year-on-year in the 3rd quarter, all other regions achieved growth. The revenue growth rate in the East/South/Midwest/North region in 3Q24 was +8.6%/+1.2%/-12.9%/+2.5%, respectively. The southern region of the base market accounted for 43.5% of revenue, an increase of 0.6 pct over the previous year. In terms of the number of dealers, by the end of the 3rd quarter, the total number of the company's dealers was 2,395, an increase of 110 over the first half of the year. Among them, the number of dealers in the southern/east/midwestern/northern regions was -13/+14+23/86, respectively.

Benefit costs have declined, product structure has improved, and gross margin has improved markedly in 3Q24. In the third quarter, the company controlled expenses, and net interest rate after deducting non-return income increased by 3.2 pct year-on-year. (1) The gross profit margin of 3Q24 was 38.1%, up 4.9pct year-on-year (1Q24 and 2Q24 increased 6.1 pct and 4.2 pct, respectively). The significant increase in gross margin was related, on the one hand, to the decline in raw material purchase price and efficiency, production costs and logistics costs, and on the other hand, to the increase in the revenue share of high-margin chicken extract chicken powder. (2) The 3Q24 company's four expense ratios decreased by 1.3 pct to 16.1% year on year. Among them, the sales expenses rate for the 3rd quarter decreased by 1.9 pct to 6.3% year on year. We judge that it is related to the company's active fee control and internal expense investment pace. The management expense ratio increased by 1.1 pct to 7.0% year over year, mainly related to the increase in compensation and benefits, depreciation and amortization, and equity incentive waiting period expenses. The 3Q24 tax and surcharges ratio remained essentially flat year over year. Affected by the increase in gross margin and the decline in the expense ratio, the 3Q24 company's net interest rate after deduction of non-return mother increased by 3.2 pct to 16.0% year on year.

valuations

In the 3rd quarter, the company actively adjusted channel inventory, stabilized the price market through various measures, sorted out channel pain points, and gradually stabilized the main condiment business. As demand for catering and consumer consumption gradually picks up, and the company's internal mechanisms are straightened out one by one, the company's operations will continue to improve. We maintain our previous profit forecast. We expect revenue growth rates to be 7.1%, 14.1%, and 14.0% respectively for 24-26, and net profit growth rates of -58.2%, 27.2%, and 22.9%, respectively. Corresponding PE is 24.9X, 19.6X, and 16.0X, respectively, maintaining an increase rating.

The main risks faced by ratings

There are downside risks to the macroeconomy, and demand recovery is slow. The nationwide layout fell short of expectations, and the catering channel layout fell short of expectations. The cost of raw materials fluctuates. Competition in the industry has intensified.