Revenue remains steady and profit performance is impressive

The company's 24H1 achieved revenue/net profit of 15.45/0.97 billion, +6.0%/+10.2% year over year; after excluding one-time land revenue (revenue from Hefei factory land sales) for the same period of the year, the company's 24H1 core net profit was +57.5%, corresponding to 24Q2 net profit of 0.51 billion, or +30.7% year-on-year. On the revenue side, the company's 24H1 beverage business was +8.3% year-on-year, with a good growth trend; the food business achieved slight growth and remained stable; on the profit side, cost improvement/product structure optimization/capacity utilization improvement/reduced competition/scale effects/improved operating efficiency are expected to jointly drive the company's profit margin boost. Looking ahead to the whole year, the company is expected to record steady revenue growth while further releasing profit flexibility through measures such as reduction/cost control/operational efficiency improvement. We expect EPS of 0.42/0.46/0.49 yuan for 24-26. Referring to a comparable company's 24-year average of 18x PE (Wind agreed expectations), we will give the company 18x PE in 24 years, with a target price of HK$8.22 to maintain the “purchase”.

The beverage business is growing well, and the food business is also recording positive growth

1) Beverages: 24H1 earned 10.02 billion, +8.3% YoY; of these, ready-to-drink tea/juice/milk tea earned 4.65/1.79/3.28 billion, +11.8%/+8.2%/+3.3% YoY. Fuchun Green Tea, a new sugar-free tea product launched this year, is currently progressing well on the market, achieving sales of 0.1-0.2 billion in 24H1. The brand power of Assam milk tea, a classic single product, continues to improve, and future plans are to continue to explore new opportunities in more drinking scenarios. 2) Food:

24H1's revenue was 4.95 billion, +0.9% year over year; of these, the instant noodle business revenue was 4.86 billion yuan, +1.9% year over year. The main products, Laotan Sauerkraut & Tomato, grew by double digits. Looking ahead to the second half of the year, the company expects the beverage business to accelerate, and the food business is also expected to achieve steady growth driven by the launch of new products and the upgrading of old products.

24H1 gross margin was +2.7 pct year over year, and core net margin +2.0pct24h1 gross margin was +2.7 pct year over year. Among them, the gross margin of the beverage/food business was +2.6/2.5pct to 38.0%/27.2% year over year. The increase in gross margin was driven by lower raw material prices/product structure improvement/capacity utilization rate improvement/reduction. On the cost side, the 24H1 sales expense ratio was 23.2%, the same as the previous year, and the management expense ratio was 3.5%, and -0.2pct year over year. After deducting one-time land sales revenue for the same period of the year, the 24H1 core net interest rate was +2.0pct to 6.2% year over year, with the drink/food business net interest rate +1.5/+4.1pct year-on-year to 12.5%/2.9%. The company expects the annual gross margin to increase year-on-year, and competition in the short-term beverage business will intensify, but it is expected that the annual expense ratio will remain within a reasonable and manageable range, and overall profitability is expected to increase. The company's dividend ratio is expected to be maintained at 100% +, and the high dividend value is prominent.

High dividends, steady growth, maintaining a “buy” rating

We are optimistic that the company's beverage business will continue to grow and the food business is expected to remain steady. Considering the continued contributions to profitability due to falling raw material prices, reduction, increased capacity utilization, and product structure optimization, we raised our profit forecast. We are expecting EPS of 0.42/0.46/0.49 (previous 0.41/0.45/0.48 yuan) for 24-26, giving a target price of HK$8.22 (previous value of HK$7.98) to maintain the “purchase”.

Risk warning: industry competition intensifies, new product promotion falls short of expectations, food safety issues.