Incident: The company released its 2024 three-quarter report. The first three quarters achieved operating income of 1.18 billion yuan, a year-on-year decrease of 13.2%; realized net profit to mother of 49.42 million yuan, a year-on-year decrease of 40.1%. Among them, 24Q3 achieved operating income of 0.42 billion yuan, a year-on-year decrease of 11.7%; realized net profit to mother of 14.66 million yuan, a year-on-year decrease of 57.9%.

Q3 revenue was under pressure in the short term, and e-commerce channel revenue grew rapidly. 1. By product, probiotic drinks, probiotic foods, other beverages, food, and commodity supply chain businesses achieved revenue of 0.49 billion yuan (-8%), 0.14 billion yuan (+18.1%), 0.05 billion yuan (+24.8%), and 0.49 billion yuan (-25.8%) in the first three quarters of 2024, respectively.

1) Probiotic drinks: Taste power products maintain the leading position in the industry, expand segmented categories and optimize the activation of old products.

2) Probiotic food: Junyao Runying's revenue increased 35% year-on-year, and has been selected into the internationally renowned starter supplier list; new C-side probiotic products continue to gain strength. 3) Panyuan supply chain: Added Pinduo multiple channels and completed strategic contracts with important customers such as OLE, Market Opener, and Huazhu. 2. By channel, marketing and direct sales achieved revenue of 1 billion yuan (-17.8%) and 0.18 billion yuan (+25.2%) respectively in the first three quarters, with impressive direct sales growth rates. Among them, e-commerce channels soared high, and sales volume increased 93% year over year.

Gross profit margin increased significantly. 1. In the first three quarters of 2024, the company achieved a gross profit margin of 29.8%, an increase of 5.1 pp over the previous year.

Among them, Wei Dynamics achieved gross margin of 40.4% in the first three quarters through refined operation management and cost structure optimization.

2. In terms of cost ratio, the sales expense ratio for the first three quarters was 14.3%, an increase of 3.6 pp over the previous year, mainly due to changes in the channel structure. Management cost ratio was 8.7%, up 2.2 pp year on year; R&D cost rate was 2%, up 0.8 pp year on year; financial cost ratio was -0.1%, up 0.3 pp year on year. 3. The net interest rate for the first three quarters was 4%, down 2.5pp year on year.

Share buybacks are used to motivate employees and demonstrate confidence in development. Starting in February 2024, the company will repurchase shares within 1 year. The estimated repurchase amount is 0.1-0.2 billion yuan, which will be used for employee stock ownership or equity incentives. Currently, 6.5 million shares have been repurchased, with a transaction amount of 47.94 million yuan. The repurchase plan reflects the company's confidence in future development prospects and will improve the company's long-term incentive mechanism.

Profit forecast: The company's net profit for 2024-2026 is estimated to be 0.06 billion yuan, 0.08 billion yuan, 0.09 billion yuan, and EPS is 0.11 yuan, 0.13 yuan, and 0.15 yuan respectively, corresponding to dynamic PE of 53 times, 44 times, and 37 times, respectively.

Risk warning: risk of raw material price fluctuations; risk of production capacity release falling short of expectations; food safety risk.