The company released its quarterly report for '24:

Q3: Revenue of 0.94 billion yuan (-1.1%), net profit of 0.07 billion yuan (+35.1%), net profit of non-return of 0.07 billion yuan (+57.4%); Q1-3: revenue of 2.72 billion yuan (+5.2%), net profit attributable to mother 0.2 billion yuan (+28.2%), net profit of non-return of 0.19 billion yuan (+31.3%).

The results are in line with market expectations.

Revenue analysis: Butter drives high growth in raw materials business

By product: Q1-3 Frozen baked foods/ baking ingredients accounted for 58%/42% of revenue, -7%/+30% year-on-year. The decline in baked goods was affected by supermarket channels, and baking ingredients were driven by cream (70% + year-on-year increase).

Channel division: Q1-3 Distribution/ Supermarket/ Catering's new retail revenue accounted for 55%/27%/18%, +11%/-10%/+20% year-on-year. The supermarket channel was affected by changes in the launch time of some products from core customers.

Profit analysis: profit increase due to rate optimization

Q3 gross margin was -0.5pct to 31.3% year over year, mainly due to an increase in the share of baking ingredients with low gross margin; sales/management/ R&D rates were -2.2 pct/ -1.0 pct/ -0.7 pct year over year, and fee control was obvious, resulting in a net margin of +1.9 pct to 7.2% year over year in Q3.

Investment advice: Maintaining a “buy” rating

Our point of view:

As the capacity utilization rate of the Lubao factory climbs, cream products are expected to continue to drive growth, while the 25-year supermarket adjustment is expected to end and resume growth. The net interest rate of for-profit companies still has a lot of room to improve compared to the historical center, and it is hoped that profit flexibility will continue to be unleashed.

Profit forecast: In 2024-26, we expect the company to achieve operating income of 37.3/41.4/ 4.58 billion yuan, or +6.5%/+11.1%/+10.5%; net profit to mother 2.7/3.2/ 0.38 billion yuan, +269.8%/+19.1%/+17.4% year-on-year; current stock price corresponding PE is 22/19/16 times, respectively, maintaining a “buy” rating.

Risk warning:

Demand fell short of expectations, new product expansion fell short of expectations, market competition intensified, and raw material costs rose above expectations.