Incident: On November 10, the company held an offline product sales conference to report on the progress of offline distribution and offline store layout and sales since the May Global Ecological Conference, and to focus on announcing plans and supporting policies for the offline section of the New Year Festival.

Offline distribution is growing rapidly, and a number of policies have empowered dealers. Since 2024, the company has accelerated offline channel layout and offline distribution. 24Q3 offline distribution was +51% year-on-year, with a monthly increase of 285% in October. Terminal sales were strong, and most dealers achieved rapid growth. The conference emphasized the benefits and guarantees for dealers, including 1) introducing new intensive sales methods such as the 9.9 yuan zone to help dealers achieve large returns from small sales, 2) increasing marketing cost support for markets and channels, and 3) increasing production capacity and quality assurance for products such as out-of-stock compensation.

Offline stores achieved month-on-month improvements after organizational changes, clearly focusing on differentiated items such as loose nuts to achieve misplaced competition with snack stores; formed divisions through customized pallets and other channels to stabilize the price market. At the same time, the offline business complements the “Sailon” mechanism for evaluating dealers, which is expected to fully activate their combat capability. The product supports a rich palette and deepens the high-end cost performance strategy. In addition to the confidence given by the channel policy to dealers, the company's products have also been actively supported, including 1) online explosives have been verified, and the migration to offline has had remarkable results; 2) achieving cost leadership through supply chain construction and independent manufacturing. After strong competition, the terminal's high-end cost performance advantages are obvious; 3) improved manufacturing capabilities and expanded category boundaries, laying the foundation for a better display.

Save energy to prepare for the peak season of New Year's goods, and have positive offline business goals. The company's nut gifts, baking gifts, and snack gifts have achieved multi-dimensional upgrades in categories, product specifications, packaging, and price ranges, and the growth goals of various businesses are positive. The company also provides strong market fee and channel policy support, and promises to guarantee product delivery and quality.

The expansion of offline channels is gradually deepening, reaching the goal of 10 billion dollars in distribution. In the short term, Squirrel announced in-depth cooperation with iSnacks and Ai Discount in October. At the conference, policies were proposed to strongly support Ai Discount to join. It is expected to fully integrate the advantages of all parties, gain insight into store data, and achieve growth. Combined with preparations before the 2025 Spring Festival, the peak season for New Year's goods can be expected. In the long run, along with the continuous implementation of production bases and intensive bases, leading total cost and overall link efficiency will protect high-end cost performance and further deepen core competitiveness. The continuous expansion of offline channels and the commencement of investment and mergers and acquisitions will hopefully reuse the experience, existing resources, and global capabilities accumulated in this cycle in new fields, and add momentum to the three-year target.

Investment advice: Net profit from 2024 to 2026 is expected to be +82.6%/40.8%/33.2% year-on-year, EPS is 1.00/1.41/1.88 yuan, and the corresponding PE is 35/25/19X. Considering the uncertain pace of downstream channel competition and expansion, the “careful recommendation” rating is maintained.

Risk warning: risk of increased competition; risk of new business expansion falling short of expectations; risk of food safety.