The company released its 2024 three-quarter report: 24Q1-3 revenue of 17.114 billion yuan, +7.9% YoY, net profit to mother of 1.022 billion yuan, -6.6% YoY, minus 0.928 billion yuan of non-net profit, -6.8% YoY; 24Q3 revenue of 6.063 billion yuan, +2.8% YoY, net profit of 0.389 billion yuan, YoY -20.6%, net non-net profit 0.361 billion yuan, YoY -20.4%.

Q3 External environmental pressure increased, traditional core offline channels were under pressure, and the online share remained high. 24Q3 traditional core business revenue (excluding technology) was 2.237 billion yuan, down 6.6% year on year; 24Q3 Chenguang Technology's revenue was 0.399 billion yuan, up 41.5% year on year; 24Q3 traditional + technology revenue was 2.636 billion yuan, down 1.6% year on year. The company actively promotes online business, strengthens the online product line layout to meet the differentiated consumer needs of various platforms, continues to promote new channel businesses such as Pinduoduo, Douyin, and Kuaishou, and maintains an increase in online share and continues to grow at a high level. Q3 External environmental pressure increased, consumption power weakened, and traditional core business performance was under pressure. The offline strategy continues, focusing on key terminals, focusing on improving the quality of individual stores, combining the company's key categories and focusing on the promotion of classic best-selling items, further strengthening product strength, and enhancing product attractiveness through highly functional items and diverse IP co-brands. With the arrival of the peak flood preparation season for elementary schools, later orders are expected to gradually improve. The company continues to develop overseas markets, develop localized products according to local conditions, and promote the construction of regional channels in Africa, Southeast Asia, etc., which is expected to support the company's growth in the medium to long term.

Due to the decline in consumption power, profits from traditional core businesses are under pressure. The revenue of 24Q3 writing tools/student stationery/office stationery was 0.884/1.189/0.713 billion yuan respectively, +2.5%/-8.4%/+1.9% year-on-year. The student stationery product structure was clearly affected by the decline in consumption power, and revenue declined in stages. The gross margins of 24Q3 writing tools/student stationery/office stationery were 40.9%/30.8%/27.1%, respectively, compared to +0.3/-2.7/-1.7pct, respectively. The Q3 product structure changed, while the online growth rate was faster than offline, causing gross margins to be affected in stages. The company continues to promote product focus strategies to enhance the appeal of new products, and is expected to gradually improve in the future.

Major retail stores: The growth rate of Kugi Grocery Store has slowed down and maintained steady store opening. The revenue of major retail stores in 24Q3 was 0.389 billion yuan, down 0.6% year on year; among them, Jiumu Grocery Store's 24Q3 revenue was 0.367 billion yuan, up 4.4% year on year. As of the end of 24Q3, the company had a total of 740 major retail stores; 702 were in Kumu, a net increase of 84 compared to the end of 2023 (of which 31 were net increases in 24Q3). Jiumu Sundries was also affected by the weakening margins of consumption in Q3, and the growth rate gradually decelerated. Jiumu Grocery Store maintains refined offline operations, works simultaneously online and through multiple channels, enhances stickiness through member management, and has maintained steady store opening since 2024. Jiumu continues to play a role as a bridgehead for Chenguang's brand and product upgrades, and it is expected that it will gradually positively drive the company's profits in the future.

Colipu: External disturbances still exist, active order screening to maintain steady growth. In 24Q3, Colipu's business revenue was 3.038 billion yuan, up 7.4% year over year. External disturbances still exist, and the company actively screens orders, controls receivables risks, and achieves steady growth in quality revenue. Colipu continues to dig deeper into its stock and new customers, focusing on the expansion of the four major sectors of office, MRO, marketing gifts, and employee benefits. With the gradual normalization of business processes in the later stages, Colipu's revenue growth rate is expected to accelerate.

Q3 Profits weakened due to product and business structure, and amortization of Colipu equity incentive payments. The gross margin for 24Q1-3 was 19.8%, or 0.61 pct year on year; of these, the gross profit margin for Q3 was 20.5%, -1.4 pct year on year. On the one hand, Colipu's revenue share increased, and overall gross margin declined due to changes in business structure; in addition, traditional core businesses were affected by the downgrade of consumption and the increase in the share of online sales, and gross margin gradually weakened. The 24Q1-3 sales/management/R&D/finance cost rates were 7.5%/4.2%/0.8%/-0.2%, respectively, 0.44/0.11/-0.08/0.11pct; 24Q3 sales/management/ R&D/ finance rates were 7.9%/4.1%/0.8%/0%, respectively, compared with 0.91/0.05/-0.11/0.16pct, respectively. Q3 The increase in the company's sales expenses ratio was mainly due to increased online traffic investment on different platforms, and the slight increase in management expenses was mainly due to amortization of Colipu's equity incentive expenses.

The integrated two-wing strategy is being promoted. The product side and channel side of the traditional core business are actively retailing transformation to create differentiated competitiveness from peers, and its own brands go overseas to support growth in the medium to long term; Jiumu Sundries Club has sufficient exhibition space, and Colipu expands categories and digs deeper into customers. The new business is expected to maintain a high growth rate, and with the release of scale effects, profitability will increase. Considering that weakening consumption power had a significant impact on the company's profit, the 2024-2026 return profit was lowered to 1.5/1.681/1.85 billion yuan (previous value: 1.73/1.986/2.231 billion yuan), -1.8%/+12.1%/+10.0%, respectively. The corresponding PE was 18/16/15X, maintaining the “buy” rating.

Risk warning: The risk that terminal consumption power will continue to weaken and industry competition will increase.