The main business operation is steady, and the strategic plan is clear and firm: the company continued to advance according to the five-year strategic plan. Among them, the low temperature business of the eastern subsidiary grew well and is expected to lead the overall growth rate; the western region's room temperature business accounts for a higher share. As terminal demand and price competition improve, business performance is expected to recover in 25 years. Looking at the breakdown of the company's strategic goals, 1) The core business relies on: ① category-side low-temperature fresh milk and low-temperature specialty yogurt.

Compared to room temperature, the low temperature category still has a lot of room for transformation and improvement, and is difficult to operate, which can easily form competitive barriers.

② D2C channel on the channel side. The creation of private traffic such as milk orders/memberships/image stores can strengthen ties with consumers and increase barriers to competition. 2) Improve corporate value and net margin support: ① Structural optimization brings about an increase in gross margin. The gross margin of the low temperature category and D2C channel is significantly higher, and optimization of the product and channel structure can increase the overall gross profit margin. The 24Q3 company's gross margin increased 2.4 pct year over year, with structural optimization contributing an important increase. ② Increased scale+improved internal efficiency can lead to optimization of management/financial expenses.

Judging from the strategic goals, the core business of the company's layout is more segmented with high gross profit and high barriers, and places higher demands on management. By further disassembling the company's core competencies, we can better understand that the new dairy industry continues to outperform the industry's operating performance:

Integrated merger, acquisition and post-investment management capabilities: 1) The new dairy industry started with integrated mergers and acquisitions. After years of early exploration, it has formed a multi-dimensional brand/supply/channel management method for M&A companies. The head office grasps the work of “control, management, and service”. The subsidiary focuses more on its own revenue and profit goals, and has more freedom in selecting middle- and grass-roots personnel and arranging market actions. 2) For multi-brand operations, considering that local regional brands have strong brand imprints and consumer awareness over decades, the company retains its original brand (each region has a “New Hope” main brand icon followed by different sub-brands). At the same time ① Each region gradually unifies products/packaging on major items, thereby ensuring the unification of marketing and materials. ② The headquarters improves management capabilities and gradually realizes unified marketing/promotion/procurement/major customer negotiations; the production side strengthens collaboration, and subsidiaries increase the utilization of production capacity through mutual OEM.

A series of targeted management actions is the core support for the continuous improvement of the company's operating efficiency.

Low-temperature category operation capabilities and R&D innovation capabilities: 1) Behind the company's “fresh” strategy is an 8-dimensional “fresh” capability, which is specific to different links in the industrial chain, which require segmentation into order delivery time/delivery time, etc. The core single product “24 hours” fresh milk is an effective reflection of the company's ability to cool at low temperatures. The product is only sold on the same day, and the volume of the single product is growing well. 2) The new dairy industry focuses on iterating new products. Each subsidiary has requirements to assess the proportion of new products. The subsidiaries will launch local specialty products according to local consumption habits and adjust the taste of major national products. 24Q3's new products maintain a revenue share above double digits, and plans to gradually increase the proportion of new products in the future.

Profit forecasting, valuation and rating: Considering the continuous upgrading of the company's product structure, management optimization increases profits.

We raised 2024-2026 net profit to 0.564/0.671/0.768 billion yuan (up 2.47%/1.25%/3.44% from the previous time, respectively), the corresponding EPS for 2024-2026 was 0.65/0.78/0.89 yuan, respectively, and the current stock price corresponding PE was 22X/19X/16X, respectively, maintaining the “buy” rating.

Risk warning: Sales recovery fell short of expectations, raw material costs fluctuated, and core product growth fell short of expectations