occurrences

The company announced its 2024 three-quarter report. In the first three quarters of 2024, the company achieved total revenue of 18.413 billion yuan, -10.89% year-on-year, net profit of 0.116 billion yuan, -63.94% year-on-year, after deducting non-return net profit of 0.213 billion yuan, or -31.66% year-on-year. In 24Q3, the company achieved total revenue of 5.699 billion yuan, -12.66% year-on-year, net profit to mother of -0.164 billion yuan (-0.015 billion yuan in the same period last year), and net profit not attributable to mother of -0.135 billion yuan (-0.005 billion yuan in the same period last year).

Q3 Other dairy products resumed positive growth, while growth in overseas regions was relatively steady 1) Q3 Other dairy products resumed positive growth. In the first three quarters of 2024, the company's revenue from liquid milk, other dairy products, animal husbandry products and other products was 110.97, 5.614, 0.808, and 0.839 billion yuan, respectively, -9.22%, -1.03%, -44.25%, -29.02%, and 24Q3, -8.35%, +2.63%, -47.58%, and -75.94%, respectively.

2) Revenue from overseas regions achieved positive growth in Q3. In the first three quarters of 2024, the company's revenue in Shanghai, overseas and overseas was 5.416, 7.668, and 5.273 billion yuan, respectively, -6.92%, -20.03%, +3.01%, and -9.44%, -20.34%, and +4.08% in 24Q3, respectively.

3) By channel: In the first three quarters of 2024, revenue from the company's direct management, dealers, and other channels was 3.971, 14.288, and 0.098 billion yuan, respectively, -18.17%, -8.32%, and +11.64%. 24Q3 was -24.89%, -8.34%, and -190.43%, respectively. At the end of 24Q3, the number of the company's distributors in Shanghai and overseas was 552 and 3935 respectively, with a net increase of 58 and 138 in Q3.

Impairment is disrupted and profits are under pressure

1) Depreciation is disrupted, and profits are under pressure. In the first three quarters of 2024, the company's gross margin was 19.28%, +0.61 pct year on year, 0.93 pct year on year, mainly due to increased cost rigidity and impairment losses; the company's sales and management expenses ratio was +0.12, +0.56 pct to 12.55% and 3.79% year on year, and impairment loss/revenue was +1.81 pct to 1.74% year on year, mainly due to the impact of falling milk prices on raw materials and asset impairment accrued by overseas subsidiaries.

2) Q3 profit margins were affected by asset impairment and operating losses of the overseas subsidiary New Zealand New Zealand New Zealand.

In 24Q3, the company's gross margin was 18.06%, +2.54pct year on year, mainly due to the decline in milk prices, the net profit margin was -2.88%, -2.64pct year on year, mainly affected by increased cost rigidity and impairment losses; the company's sales and management expenses ratio was +1.48, +1.14pct to 14.46% and 4.08% year on year, and impairment loss/revenue was +4.91 pct to 5.06% year over year, mainly due to the overseas subsidiary New Zealand Xinlites accrued asset impairment and operating losses.

Investment advice

We expect the company's net profit to be 0.27/0.499/0.543 billion yuan in 24/25/26, respectively, with a growth rate of -72.05%/84.69%/8.80%, corresponding to 44/24/22 times PE on November 4 (market value 11.8 billion yuan), maintaining the “buy” rating.

Risk warning

Food safety risks, raw milk price fluctuation risks, terminal demand falling short of expectations.