The company released its 2024 three-quarter report: 24Q3 achieved revenue of 6.063 billion yuan (+2.8% YoY), net profit of 0.389 billion yuan (YoY -20.6%), and net profit of 0.361 billion yuan (YoY -20.4%). Affected by the weak consumer environment, we determined that the share of sales of low-profit products increased slightly, and profits were under year-on-year pressure.

The traditional core is under slight pressure, and e-commerce & overseas sales are growing rapidly. According to our estimates, the company's 24Q3 traditional core business (total revenue - living center - Colipu) achieved revenue of about 2.64 billion yuan (-2% YoY). Among them, student stationery performance was weak, and 24Q3 writing tools/student stationery/office stationery achieved revenue of 0.88/1.19/0.71 billion yuan respectively (+2.5%/-8.4%/+1.9%), with gross margins of 40.9%/30.8%/27.1% (YoY +0.3pct/-2.7pc-1.7pct) We determined that student stationery was affected by weak consumption and the increase in sales share of low-margin products. Revenue and gross margin were under year-on-year pressure, and the performance of writing tools and office stationery was relatively stable; the company actively promoted an increase in the share of direct sales & online channels, and e-commerce channels grew at a beautiful rate. 24Q3 Chenguang Technology achieved revenue of 0.4 billion yuan (+38.9% YoY), a further acceleration compared to Q2. The company reduced volume and quality of product development, increased single product delivery rate and sales contribution, and focused on classic and best-selling products. In terms of overseas sales, it is deeply involved in the African and Southeast Asian markets and develops localized products according to local conditions. We judge that the 24Q3 overseas business maintained a relatively rapid growth rate.

Colipu is under pressure in the short term, and improvements can be expected. Jiumu's growth is slowing down, and the pace of opening stores is impressive.

Colipu: In 24Q3, Colipu achieved revenue of 3.04 billion yuan (+7.5% year over year), the growth rate slowed down due to the macroeconomic environment, with a gross profit margin of 7.1% (-0.1 pct year on year), and profitability remained stable; the company continued to improve its digital capabilities, warehousing and distribution capabilities, focusing on the electricity, energy and financial sectors. We expect subsequent business recovery as central enterprises place orders one after another.

Jiumu: 24Q3 Living Center (including Jiumu) earned 0.39 billion yuan (+0.4% YoY), of which Jiumu's revenue was 0.37 billion yuan (+3.2% YoY), and the growth rate slowed month-on-month due to the sales structure. Since this year, the number of Jiumu stores has increased by 84 to 702 (+31 in 24Q3), and the number of living centers has decreased by 3 to 38 (no change in Q3). Jiumu stores are expanding at an accelerated pace. Currently, they have entered 70 cities. We expect to maintain a relatively rapid pace of expansion and strengthen the expansion of new markets next year. The product portfolio is continuously optimized, the refined operation of stores and the steady improvement of consumer insight & service capabilities. The membership volume exceeds 10 million, and the operation is healthy.

Profitability declined slightly year over year and is expected to remain stable in the long term. The 24Q3 company's gross margin was 20.5% (-1.4pct year over year), the net profit margin to mother was 6.4% (YoY -1.9pct), and the 24Q3 sales/management/R&D expenses ratio was 7.9%/4.1%/0.8%, respectively (+0.9pct/basic flat/-0.1pct). Looking forward to the future, with the gradual upgrading of the company's product & channel structure, profitability is expected to remain steady.

Cash flow improved, and operating capacity performance was stable. The company generated a net operating cash flow of 0.687 billion yuan (+0.016 billion yuan year-on-year) in 24Q3, and the cash flow was healthy. In terms of operating capacity, as of the end of 24Q3, the company's accounts receivable turnover days were 61 days (+4 days year over year), 91 days payable turnover days (+4 days year over year), and inventory turnover days were 29 days (-2 days year over year), and operating capacity remained stable.

Profit forecast: We expect net profit to be 1.5 billion yuan, 1.74 billion yuan, and 2 billion yuan respectively for 2024-2026, corresponding PE of 17.8X, 15.4X, and 13.4X, maintaining a “buy” rating.

Risk warning: The recovery of offline traffic falls short of expectations, the launch of new products falls short of expectations, and the expansion of Colipu's customers falls short of expectations.