occurrences

The company announced its 2024 three-quarter report. In the first three quarters of 2024, the company achieved total revenue of 8.15 billion yuan (-0.54%), net profit due to mother 0.474 billion yuan (+24.37%), and net profit not attributable to mother of 0.507 billion yuan (+29.50%). In a single quarter of 2024Q3, the company achieved total revenue of 2.785 billion yuan (-3.82%), net profit due to mother 0.177 billion yuan (+22.92%), and net profit not attributable to mother of 0.193 billion yuan (+19.73%).

The company plans to pay an interim dividend. Each share plans to pay a cash dividend of 0.035 yuan (tax included). The dividend amount accounts for 10.16% of net profit returned to mother in the first half of the year.

Q3 The low temperature category achieved double-digit growth

1) The Q3 low temperature category achieved double-digit growth. The company's 24Q3 revenue fell 3.82% year on year. Although affected by the sale of some shares in “a yogurt cow” at the end of last year, the revenue growth rate was steady; by category, in 24Q3, the company's core categories of low-temperature fresh milk and low-temperature yogurt achieved double-digit year-on-year growth, mainly benefiting from new product development and promotion and DTC channel expansion contributions. The room temperature category's performance was relatively weak, with a drop in the middle to low single digits.

2) The East China subsidiary achieved double-digit growth in Q3. By region, in 24Q3, the company's East China subsidiary achieved double-digit revenue growth. Western companies were under pressure due to the impact of the overall consumption environment, mainly due to the impact of the product structure 3) Vipshop's Q3 growth accelerated. In the first three quarters of 2024, Vipshop's revenue continued the trend of double-digit year-on-year growth. Q3 performance was better than in the first half of the year, and the revenue growth rate accelerated. It mainly benefited from Vipshop's continuous iteration of new products in the fresh milk and yogurt categories, and the continuous expansion of B-side business and customers other than East China.

Continued increase in profit margins driven by falling milk prices+structural optimization

1) Decrease in milk price+product structure optimization, driving the company's profit margin to continue to increase. In the first three quarters of 2024, the company's gross margin was 29.09%, +1.67pct year on year. The increase in gross margin was mainly due to falling milk prices and product structure optimization; net profit margin to mother was 5.81%, +1.16pct year on year; in 24Q3, the company's gross margin was 28.83%, +2.40pct year on year, and net profit margin was 6.36% year on year, +1.38 pct year on year.

2) Expenses have increased. In the first three quarters of 2024, the company's sales expense ratio was 15.83%, +0.77pct year on year, and the 24Q3 sales expense ratio was 15.27%, +1.30pct year on year, mainly due to the company's increased investment in market promotion.

Investment advice

We expect the company's net profit to be 0.541/0.654/0.77 billion yuan in 2024-2026, with a growth rate of 25.59%/20.94%/17.66%, corresponding to PE 20/16/14X (market value 10.7 billion yuan) on November 1, respectively, maintaining the “buy” rating.

Risk warning

Risk of fluctuations in consumption scenarios, risk of fluctuations in raw milk prices, risk of policy adjustments.