Event: Angel Yeast published its 2024 semi-annual report. 24H1 achieved operating income of 7.175 billion yuan, +6.86% year over year; net profit due to mother 0.691 billion yuan, +3.21% year over year; realized net profit deducted from mother 0.596 billion yuan, -2.50% year over year. Among them, 24Q2 achieved operating income of 3.692 billion yuan, +11.30% year over year; net profit to mother of 0.372 billion yuan, +17.26% year over year; net profit deducted from non-mother 0.301 billion yuan, +7.32% year over year.

Comment:

Domestic and international growth rates are increasing, and the main yeast business is driving revenue growth. By product, 24Q2 yeast and deep-processed products, sugar products, packaged products, and others achieved revenue of 2.67 billion yuan, 0.19 billion yuan, 95 million yuan, and 710 million yuan, respectively, of +12.24%, -40.07%, -17.05%, and +46.42% year-on-year respectively. Against the backdrop of a gradual decline in revenue from sugar products, the main yeast business and other products are driving the company's revenue growth. Looking at the subregion, the 24Q2 company recorded domestic and foreign revenue of 2211 billion yuan and 1,454 billion yuan respectively, +6.6% and +19.0% year-on-year respectively. Domestic revenue both began to grow year on month after the price reduction of the company's products, while overseas revenue continued to rise high year on year. Looking at sales channels, 24Q2's offline revenue and online revenue reached 2.47 billion yuan and 1,195 billion yuan respectively, +13.0% and +7.6% year-on-year respectively.

There was a slight increase in gross margin, and non-financial profit and loss mainly came from government subsidies. On the gross profit side, the company reached 23.92% in 24Q2, an increase of 0.27pct over the previous year. The monthly decline in molasses costs brought room for an increase in gross margin. Q2 The cost side was relatively stable. The sales expense ratio, management expense ratio, R&D expense ratio, and financial expense ratio were 5.49%, 3.13%, 4.09%, and -0.14%, respectively, and +0.56pct, -0.33pct, -0.57pct, and +0.63pct, respectively. Other revenues/revenue increased 1.36pct year over year, mainly due to an increase in Q2 government subsidies. The Q2 company's net profit margin reached 10.26%, +0.36pct year on year, driving Q2 net profit to mother to grow faster than revenue growth.

Strive to improve the level of supply and marketing, and continuously stimulate employee motivation. On the sales side, the Q2 company promotes product sales by reducing the price of domestic products. For pasta, YE uses a one-factory-one-policy, and YE carries out industry segmentation promotion. At the same time, the international business side flexibly adjusts market strategies to seize the dividends of high market growth. On the supply side, the company's total fermentation output in the first half of the year reached 0.204 million tons, +11.5% over the same period last year. At the same time, the company is actively promoting the Dehong and Pu'er yeast extract projects, the Egyptian yeast product expansion project, and the construction of a 0.15 million ton grain storage and supporting facilities project for the Yichang High-tech Zone Company, laying the foundation for the company's long-term development. In June '24, the company announced the draft of a new round of equity incentive plans to stimulate employee motivation with scientific goals.

Profit forecasting and investment ratings: Focus on domestic demand recovery and cost reduction, and seize undervaluation opportunities. The domestic demand side recovered relatively slowly in the first half of the year, which was greatly affected by macroeconomic factors, while overseas markets performed well. In the second half of the year, we need to continue to pay attention to the recovery progress on the domestic demand side. At the same time, we need to pay attention to the decline in molasses costs and fluctuations in exchange rates and shipping costs. Currently, the company's valuation is at a historically low level, and fundamental risks have been fully priced. Considering the market space for the company's products and the expandability of products and biotechnology, we believe that undervaluation opportunities are worth paying attention to. We expect the company's 2024-2026 EPS to be 1.58/1.85/2.20 yuan, corresponding to 2024-2026 19X/16X/13X PE respectively, maintaining the company's “buy” rating.

Risk factors: food safety issues, increased competition in the industry, production expansion fell short of expectations