Three squirrels: Buck the trend and break out of the trough. Three Squirrels was born in 2012, at the beginning of the rise of online e-commerce. Using e-commerce channel dividends, it rapidly grew into a leading online snack brand. It maintained the number one sales volume in the mainstream e-commerce snack category for many years, and surpassed 10 billion dollars in revenue in 2019. However, in 2020, along with the decentralization of e-commerce and the closure of offline stores, entering a negative revenue growth stage, revenue fell back to 7.29 billion yuan in 2022. At the end of 2022, the company transformed into a “high-end cost performance ratio”, driven the company to adjust the new operating model with internal organizational and supply chain changes, dig deeper into the supply chain potential, and achieve cost performance ratio externally, the “D+N” strategy led to an increase in omni-channel potential. Revenue rebounded steadily from quarter to quarter. Revenue was -2.4% to 7.11 billion yuan, with net profit + year-on-year 69.9% to 0.22 billion yuan, and revenue for the first three quarters of 2024 increased by 56.5% year-on-year to 7.17 billion yuan, breaking out of the trough and entering a new stage of growth.

High-end cost performance: Restructure the supply chain and create ultimate efficiency. Guided by the “high-end cost performance” strategy, the three squirrels are guided by market demand, restructured the supply chain operation model, achieve total cost leadership, achieve terminal cost performance ratio, and adjust the organizational model to achieve refined category operation. 1) “One product, one chain” restructures the advantages of large single products: Build a “one product, one chain” supply chain modeling model for core large single products, use direct procurement from the source to take advantage of large-scale procurement on the procurement side, build independent factories on the production side, streamline the logistics hierarchy on the logistics side, promote the quality and efficiency of the supply chain, and achieve the cost advantage of large single products. 2) “Integration of product and marketing” opens up internal organization: with categories as the core, opening up various links such as internal supply, products, and operation, leading internal product adjustments and channel operations guided by external channels and market demand, so that the organization follows the orders of the market. 3) Refined category operation enables category expansion: After the internal operation link is smooth and operational efficiency is improved, squirrels achieve refined category operation, drive efficient internal product expansion with market demand, and drive horizontal growth on the product side.

Channel: D+N empowers omni-channel, and distribution begins a new journey. On the channel side, Squirrel uses “D” short videos to achieve efficient communication, enabling omni-channel development such as “N” shelf e-commerce, offline distribution, and stores. On the Douyin channel, the company continues to create big single products. 24H1 Douyin achieved impressive year-on-year sales performance of +180.7%, and enabled shelf e-commerce to resume positive growth of 24.8%. In August, the offline channel company re-modeled 105 distribution items and began nationwide investment promotion and channel distribution, focusing on anchoring the transformation of normalized daily sales.

Looking forward to the future, Douyin is in a channel dividend period. It is expected that large single product creation ideas are clear and the operating model is mature, and the nationwide distribution layout is gradually unfolding, which is expected to open up a new curve of offline growth.

Profit forecast: After transforming the “high-end cost performance” strategy, the company has achieved explosive growth in the Douyin channel, and has strongly empowered shelf e-commerce to return to the growth channel. The online operation model is flat, offline distribution is being actively expanded, the offline system is being restructured with a cost-effective model, and there is plenty of room for long-term development. After adjusting the operating model, the company's profit gripper changed from channel competition to being driven by the scale of marketing and improving the efficiency of internal operations. Currently, net interest rates continue to rise, and there is sufficient potential for long-term growth. The company's 2024-2026 revenue is expected to be +45.2%/+30.0%/+20.6% to 10.33/13.43/16.19 billion yuan, respectively, and net profit to mother +89.3%/+36.6%/+25.4% to 0.42/0.57/0.71 billion yuan, respectively. The company's “high-end cost performance” strategy has achieved remarkable results, and the growth brought about by the adjustment of the supply chain and channel model is outstanding. The first coverage gave it a “buy” rating.

Risk warning: offline distribution development falls short of expectations, online competition intensifies, food safety issues.