Description of the event

The company's total revenue for 2024Q1-Q3 was 1.93 billion yuan (+9.72%); net profit to mother was 0.173 billion yuan (-28.01%), after deducting non-net profit of 0.159 billion yuan (-12.44%). Among them, total revenue for 2024Q3 was 0.657 billion yuan (+4.06%); net profit attributable to mother was 64.9867 million yuan (-13.45%), after deducting non-net profit of 59.3914 million yuan (-14.95%).

Incident comments

The pressure at the B end increases, and the growth rate at the C end is steady. By product, revenue for the third quarter was 0.348 billion yuan (+0.70%), light cooking solutions 0.252 billion yuan (+9.64%), beverage and dessert ingredients 0.035 billion yuan (-5.69%); by channel, direct sales 0.519 billion yuan (+4.16%) and non-direct sales 0.116 billion yuan (+1.48%). The revenue growth rate of compound seasoning products has continued to slow year-on-year in the three quarters since this year. On the one hand, it is affected by the high base for the same period last year, and on the other hand, it also reflects the current pressure on food and beverage consumption. Although revenue from light cooking solutions decelerated month-on-month compared to the second quarter, it is still growing steadily by more than 9%. The main component is expected to increase steadily in revenue from empty pasta. Currently, it emphasizes high-quality products, focuses on exquisite nursing mothers, and actively promotes sales of new products such as sausage, and the revenue growth rate is quite good.

Increased demand pressure has led to an increase in cost investment. The company's 2024Q1-Q3 net interest rate fell 4.71 pct to 8.99%, gross margin -2.10 pct to 31.8%, and the period expense ratio -0.36 pct to 18.66%, including sales expense ratio (+0.07pct), management expense ratio (-0.53pct), R&D cost rate (+0.06pct), and financial expense ratio (+0.04pct). The net interest rate due to 2024Q3 fell by 2 pct to 9.90%, gross margin -1.06 pct to 31.28%, and the period expense ratio +1.01 pct to 17.72%. Among them, the sales expense ratio (+0.93pct), management fee ratio (-0.07pct), R&D cost ratio (+0.15pct), and financial expense ratio remained flat. Increased pressure on downstream customers to operate themselves is expected to suppress the profit margins of upstream suppliers, and the profit level of empty pasta is expected to still have a year-on-year gap.

Minority shares were temporarily transferred to company executives to enhance the binding effect. Li Jinling, the limited partner of Kongke Brand, plans to transfer 25% of her property shares to He Hongwu, Liang Dongyun, Yang Zhe, Ren Ming, Ren Ying, Zhang Xuan, and Jiang Min at a price of 10.945 million yuan. Kitchen Affin relinquishes the preferential purchase rights for this Kongke brand property share transfer. Among them, He Hongwu is the director and general manager of the company, Liang Dongyun and Yang Zhe are all deputy general managers of the company, Ren Ming is the company's director and financial director, and Ren Ying and Zhang Xuan are the company's supervisors. The essence of this share transfer was the withdrawal of empty minority shareholders. In July 2024, the company announced that Kongke Brand Limited Partners Zhang Lei and Wang Yichao would transfer 50% of their total property shares to 35 natural persons at a price of 21.89 million yuan. This equity transfer to company employees is beneficial to a certain extent to strengthen the binding of employees' interests. In the future, an exit mechanism will also be designed to act as an incentive for company executives.

Profit forecast and investment advice: The company's net profit for 2024-2026 is expected to be 0.23, 0.255, 0.282 billion yuan, and EPS is 0.57, 0.64, and 0.71 yuan. Corresponding to the current stock price PE is 23, 20, and 19X, maintaining a “buy” rating.

Risk warning

1. Food safety risks;

2. The risk of fluctuations in raw material prices;

3. New product development and market competition risks.