Incident: The company released its report for the third quarter of 2024. 24Q1-3 achieved revenue of 3.95 billion yuan, -0.17%; realized net profit to mother of 0.58 billion yuan; and realized net profit deducted from non-mother of 0.55 billion yuan, +19.3% year-on-year. Among them, 24Q3 achieved revenue of 1.33 billion yuan, +2.2% year over year; realized net profit of 0.23 billion yuan, +32.9% year over year; and realized net profit deducted from non-mother of 0.21 billion yuan, +27.7% year over year.

Revenue growth improved month-on-month in the third quarter. Soy sauce and chicken powder performed well, and major regional markets achieved positive year-on-year growth. In terms of categories, 24Q3 achieved revenue of 0.74 billion yuan, 0.18 billion yuan, 0.13 billion yuan, and 0.15 billion yuan respectively, with year-on-year changes of 0.5%, 14.0%, -9.2%, and -9.0%, respectively. The year-on-year growth rate of soy sauce and chicken powder was positive in the third quarter. From a regional perspective, the eastern, southern, midwestern, and northern regions achieved revenue of 0.29 billion yuan, 0.52 billion yuan, 0.24 billion yuan, and 0.15 billion yuan respectively in 24Q3, with year-on-year changes of 8.6%, 1.2%, -12.9%, and 2.5%, respectively. The eastern region grew faster, and the southern and northern regions showed a recovery trend year-on-year. In terms of the number of dealers, as of the end of 24Q3, the total number of dealers in the company was 2,395. There was a net increase of 311 dealers this year, mainly in the Midwest and Northern regions, with a net increase of 117 and 167 respectively.

Gross margin continues to rise, and sales expenses are invested more rationally. The 24Q3 company's gross profit margin was 38.8%, up 5.0 pct year on year, mainly due to the decline in material purchase unit prices, production costs, and logistics costs; the sales expense ratio, management cost rate, and R&D expense ratio were 6.3%, 7.0%, and 2.8%, respectively. The absolute value of sales expenses decreased month-on-month, while investment efficiency improved; in addition, the net interest rate of 24Q3 was about 5 million. Under the combined influence, 24Q3's net interest rate was 18.9%, a year-on-year increase of 4.9pct.

The results of the timely adjustments are beginning to be shown, and it is expected that the reforms will continue to unleash performance flexibility. 2024 is the beginning of a three-year strategic period and a year of momentum. The company emphasizes continuing to focus on the main condiment business, strictly guided by strategy, and firmly implementing various business initiatives. At the same time, channel problems encountered earlier were actively summarized, and further optimized in terms of improving marketing organization team building, dealer classification management, cost investment efficiency, and category structure. The third quarter results all improved month-on-month and year-over-year, and we look forward to continuing to release reform dividends in the future.

Investment advice: With the clarification of the three-year strategic plan of Delicious Fresh and the implementation of equity incentives, the company is expected to contribute significant revenue growth in terms of market development and channel decline. Taking advantage of channel advantages, the product portfolio will continue to improve, and profitability is also expected to increase steadily. The company's net profit for 2024-2026 is estimated to be 0.73, 0.92, and 1.11 billion yuan, respectively, and EPS is 0.93, 1.17, and 1.41 yuan, respectively. The corresponding 24-26 valuation is 25, 20, and 17 times, respectively, maintaining a “buy” rating.

Risk warning: Industry competition intensifies, demand recovery falls short of expectations, raw material prices fluctuate, channel expansion falls short of expectations, reform progress falls short of expectations, food safety issues.