Incident Overview

The company achieved revenue of 1.938 billion yuan in 24Q1-Q3, -2.05% year-on-year, net profit of 0.018 billion yuan, +408.98% year-on-year, after deducting non-attributable net profit of -0.058 billion yuan. The company achieved revenue of 0.759 billion yuan in 24Q3, -6.10% year-on-year, net profit of 0.047 billion yuan, or -0.62% year-on-year, after deducting non-return net profit of 0.037 billion yuan, or -6.52% year-on-year.

Analytical judgment:

Brewing continues to be under pressure, and sales improve during the peak ready-to-drink season

The Q3 company adheres to the “two-wheel drive” strategy, actively explores business development opportunities and continuously improves resource efficiency. However, due to pressure from brewing demand and strategic adjustments, Q3 revenue fell 6.1% year-on-year to 0.759 billion yuan.

By product, Q3's brewing and instant drinking achieved revenue of 0.496/0.254 billion yuan, respectively, compared to -14.9%/+17.8%, respectively. The brewing business growth was under pressure; the ready-to-drink business continued to improve with the peak season and the effective implementation of the company's strategy.

By channel, Q3's distributors/e-commerce, export/direct management achieved revenue of 7.10/0.025/0.005/0.011 billion yuan, respectively, compared to -3.4%/-46.4%/-8.2%/-14.8%, respectively. Each channel is under certain growth pressure. It is expected that it is mainly affected by brewed products. The ready-to-drink channel layout is progressing according to plan, and the freezing rate continues to increase.

Cost improvements drive profit performance to outperform revenue

On the cost side, Q3's gross margin increased 2.4 pct to 40.9% year over year. We think it was mainly driven by lower raw material costs and lower freight costs. On the cost side, the sales/management/ R&D/finance expense ratios of Q3 companies were 26.1%/8.1%/1.6%/-1.2%, respectively, compared with +0.2/+1.0/+0.5/+0.8pct, respectively. The increase in sales expense ratio was mainly due to increased ready-to-drink market launch during peak season, and the increase in management expense ratio was mainly due to increased equity incentive costs. Combined with changes in gross margin and expense ratio, the company's net margin increased slightly by 0.34pct to 6.22% year on year, and the corresponding net profit to mother fell slightly by 0.62% to 0.047 billion yuan.

During the strategic adjustment period, steady business recovery can be expected

Since this year, the company has continued to push forward strategic adjustments. Ready Drink defines Meco as a “second choice outside of tea shops” and positions frozen lemon tea as a “healthy cool drink”. With the effective implementation of the new strategy, it is expected to bring in further volume of ready-to-drink products; brewing product companies continue to explore healthy upgrades and are expected to continue to achieve steady growth. We are optimistic that the company will continue to consolidate the competitive advantage of brewed products, accelerate the release of ready-to-drink products, create a second curve, and improve profit quality.

Investment advice

Referring to the company announcement, we lowered our 24-26 forecast of 3.806/4.371/4.882 billion yuan to 3.667/4.103/4.522 billion yuan; lowered the 24-26 EPS forecast of 0.77/0.93/1.13 yuan to 0.73/0.85/1.01 yuan. The corresponding valuation of the stock price corresponding to the closing price of 13.72 yuan on October 31, 2024 was 19/16/14 times, respectively, maintaining the purchase rating.

Risk warning

Cost pressure relief falls short of expectations, new product promotion falls short of expectations, and industry competition intensifies