Incident: On October 29, the company released its 2024 three-quarter report. Q1-3 of 2024 achieved revenue of 14.127 billion yuan/YoY +1.78%, net profit to mother 0.188 billion yuan/YoY -12.03%, net profit of 0.157 billion yuan/YoY. Among them, the 2024Q3 alone achieved revenue of 4.765 billion yuan/-0.49% year over year, net profit to mother 0.018 billion yuan/year on year -33.71%, after deducting non-return net profit of 0.003 billion yuan/year on year -88.45%.

The snack shop has been steadily laid out, and the store reform has improved the efficiency of the store. 1) Store side: Accelerate the expansion of franchise stores, and the steady layout of snack stores. ① By type, 2024Q3 added 13/30 direct-run stores/franchised stores respectively, with a net increase of -24/30 to 973/130, for a total of 1103. ② By business type, there were 874/125/10/94 business formats such as supermarkets/snack stores/Haohuixing discount stores/convenience stores, etc., of which there were +21 snack stores month-on-month; ③ Looking at directly managed stores, there were -23/-4 to 843/130 stores within the province/outside the province, respectively. 2) Single store side: increase transformation efforts and improve store efficiency. The consumer environment was still relatively sluggish during the reporting period. The company continued to transform existing stores to improve the operational efficiency of stores. At the same time, the company was steadily building an omnichannel collaboration platform that integrates online and offline interaction. It is expected that the level of single stores will drop slightly in 2024Q3.

Gross profit remains stable, and costs are under pressure due to factors such as store optimization. 1) On the gross profit side, the company's 2024q3 gross margin was -0.06pct to 22.65% year on year, and the gross profit performance was relatively stable; 2) On the cost side, the 2024Q3 company's sales/management/ R&D/finance expenses ratio was +0.53pct/-0.04pct/+0.00pct/+0.16pct to 18.79%/1.93%/0.07%/1.31%, and the overall period cost ratio was +0.65pct to 22.10% year-on-year, mainly due to the increase in store layout optimization and adjustment in the current period, and The impact of increased expenses such as logistics freight; 3) On the profit side, the net interest rate of 2024Q3 to mother was -0.12pct to 0.38% year over year, and net profit to mother was 0.018 billion yuan/-33.71% year over year.

Investment advice: The company is a leading supermarket in Shandong. Relying on strong supply chain capabilities and fresh food characteristics, the company continues to consolidate its position in the province. Currently, in addition to deepening advantageous regions and continuously encrypting store coverage, it is actively covering regions other than Yanwei and regions outside Hebei and Anhui through mergers and acquisitions, franchises, etc., and has made some progress. Referring to the company's 2024Q3 performance and current consumption environment, the company's 2024-2026 operating income was adjusted to 17.951/18.496/19.451 billion yuan, and net profit attributable to mother to 0.167/0.18/0.23 billion yuan. The corresponding valuation of the current stock price was 42.3/39.1/30.7 times PE, respectively, to maintain the “gain” rating.

Risk warning: 1) Showrooms have fallen short of expectations for a long time; 2) Industry competition has seriously intensified; 3) Digitalization and warehousing and logistics construction have fallen short of expectations.