Incident: The company released its mid-year report. 24H1 achieved revenue of 10.92 billion yuan and net profit of 0.93 million yuan to mother. Looking at Q2 alone, the company achieved revenue of 608.5 billion yuan and net profit to mother - 5.3 million yuan.

Comment:

The rapid upward opening of single stores verifies the competitiveness of the snack sales business model and the company's excellent operating ability. The 24Q2 company achieved revenue of 5.98 billion yuan from the mass retail business, an increase of 27.3% over 24Q1, and the mass snack business grew rapidly from month to month. As of 24H1, the number of the company's stores reached 6,638, with a net opening of 1912 stores in the first half of 24H1. The 24H1 company's average single store level was 1.88 million/home (calculated based on 24H1 snack sales revenue/ (beginning of period+end store) *2). The year-on-year increase in single stores dispelled market concerns about the impact of the single-store decline on the pace of store opening.

Profitability increased quarter-on-quarter. The net interest rate of the 24Q2 snack sales business (excluding equity incentive fees) was 2.72%, up 0.22pct from 24Q1. Continued increase in profitability from month to month dispelled market concerns that profitability fell short of expectations due to industry competition. 24Q2 The company's sales expense ratio/management expense ratio was 4.9%/3.4%, respectively, -0.5pct/-3.0pct year-on-year. The year-on-year decline in the cost ratio clearly showed the company's excellent operating ability and the scale effect of the business format.

The monetary capital is abundant, and the inventory turnover rate is fast. As of 24H1, the company's monetary cash was 2.11 billion yuan, a net increase of 0.406 billion yuan over 24Q1. The company has sufficient monetary capital, which strongly supports the rapid development of the company's subsequent business. As of 24H1, the company's inventory was 0.847 billion yuan, and the corresponding inventory turnover period was about 14 days, and the overall inventory turnover efficiency was high. In terms of cash flow, the company's 24H1 sales revenue was 12.237 billion yuan, which is in line with operating income. The net cash flow from operating activities was $0.556 billion, and the cash flow was steady and healthy.

The acquisition of shares in subsidiaries increased the shareholding ratio to the parent. On the evening of August 15, the company announced that it plans to acquire 49% of Nanjing Wanhao's shares with its own capital of RMB 0.294 billion. After the acquisition is completed, the company will hold a total of 75.52% of Nanjing Wanhao's shares through direct shareholding and Nanjing Wanxing's indirect shareholding. The company has now substantially increased its net profit to the mother by purchasing minority shares in the holding subsidiary through its own capital to increase its shareholding ratio.

Profit forecast and investment rating: Looking ahead, Wanchen Group, as the leading brand in the more efficient mass sales of snacks, is currently in the stage of rapid single-store opening and improving, and its performance continues to be realized. Furthermore, the company's acquisition of subsidiary shares increased the shareholding ratio to the parent and increased net profit to the mother. We expect the company's earnings per share for 24-26 to be 0.93, 2.61, and 3.71 yuan. The current valuation is low, and the “buy” rating for the company is maintained.

Risk factors: Increased competition in regional markets, price wars in the industry, multi-brand operating capacity falls short of expectations, and food safety issues.