Incident: On August 28, 2024, the company released its 2024 semi-annual report. 2024H1 achieved revenue of 5.075 billion yuan, a year-on-year increase of 75.39%, and achieved net profit of 0.29 billion yuan, an increase of 88.57% over the previous year. After deducting non-return net profit of 0.228 billion yuan, a year-on-year increase of 211.79%. 24Q2 achieved revenue of 1.429 billion yuan, a year-on-year increase of 43.93%, net profit to mother of 0.019 billion yuan, an increase of 51.21% year-on-year, and net profit of non-return to mother of -0.035 billion yuan, an increase of 45.02% year-on-year.

Douyin continued to grow rapidly, Tmall and JD achieved good growth, and the growth of distribution channels accelerated. 24H1 Tmall achieved revenue of 1.083 billion yuan, a year-on-year increase of 28.32%; JD achieved revenue of 0.793 billion yuan, a year-on-year increase of 20.33%; Douyin achieved revenue of 1.224 billion yuan, a year-on-year increase of 180.73%; distribution channels achieved revenue of 0.669 billion yuan, a year-on-year increase of more than 100% (original platform distribution was transferred to integrated e-commerce), and the original store model achieved revenue of 0.055 billion yuan (116 companies at the end of the period). 2024H1 National Snack Shop achieved revenue of 0.175 billion yuan, and the number of stores increased from 149 at the beginning of the year to 209.

Nuts, comprehensive categories, etc. are growing rapidly. 2024H1 nut category revenue increased 67.9% year over year to 2.76 billion yuan, gross margin was 26.55%, +1.54pct year on year, baking revenue increased 38.85% year on year to 0.609 billion yuan, gross margin was 21.62% year on year, -0.18 pct year on year, and comprehensive category revenue increased 164.82% year on year to 0.934 billion yuan, gross margin was 30.48% year on year, +0.17 pct year on year.

The supply chain continues to be optimized, and gross margin has increased. 2024H1's overall gross margin was 25.85%, up 0.89pcts year on year, and 24Q2 gross margin was 21.9%, up 3.24pcts year on year.

Organizational efficiency has improved, and management cost rates have declined. The cost rate for the 2024Q2 period was 25.29%, -1.87pcts year on year, of which the sales expense ratio was 21.1%, -0.06pcts year on year, management expense ratio was 3.53%, -1.73 pcts year on year, R&D expenses rate was 0.46%, year on year -0.21pcts, and the financial expense ratio was 0.19%, +0.12pcts year on year.

Improved profitability. The net interest rate for 24H1 was 5.71%, up 0.4 pcts year on year, and the net interest rate after deducting non-return mother was 4.5%, up 1.97 pcts year on year. The net interest rate for 24Q2 was -1.3%, up 2.54 pcts year on year, and the net interest rate after deducted from non-return mother was -2.43%, up 3.94 pcts year on year.

“D+N” omni-channel collaboration to achieve high-quality growth in omnichannel. Short video TV has positioned itself as a “new type of engine”, taking the initiative to mass-sell various explosives such as dried mangoes, buffalo milk and mille-feu toast, quail eggs, and spicy marinated gift packs, achieving an increase of nearly 1 billion, and is effectively accepted in shelf e-commerce, driving the steady growth of comprehensive e-commerce. Offline distribution and store business, with adaptation as the core, to create competitive pallets, focus on regional distribution of Japanese products, focus on roasted goods and snacks, and promote offline investment and distribution in an orderly manner. At the same time, they cooperate with mass sales discount systems such as busy, snack selection, and good bargains.

The supply chain continues to innovate and upgrade, and the moat continues to expand. The company promoted the layout of a national supply chain intensive base, landed in Wuqing North District, Tianjin, and the southwest supply chain intensive base in Jianyang, Sichuan, and launched the “Wuhu Healthy Snack Industrial Park” plan. Supply chain efficiency continues to improve, and the overall cost leading edge is continuously strengthened.

At the same time, the company innovates an industrial investment model and plans to establish a factory in Southeast Asia to connect with global supply chain resources, which is expected to further enhance product competitiveness.

Build a networked organization integrating product and sales, and activate organizational potential. The company promotes the transformation of the organization from a hierarchical organization to a networked organization, adheres to the organizational philosophy of integrating product and marketing, fully activates organizational potential, and is more adapted to high-end cost-effective strategies and market changes, with higher efficiency and more results.

Little Deer Blue's business continues to improve. Little Deer Blue is positioned as a “high-end healthy snack for children” and has continuously enriched the product line in all fields. Since its launch, it has ranked among the baby snacks in the entire network, creating tens of millions of large-scale products such as baby noodles, calcium-zinc drinks, cod sausage, hawthorn sticks, rice cakes, etc., and various products rank in the TOP1 category corresponding to Douyin. 24H1's revenue was 0.385 billion yuan, achieving double-digit growth. Currently, it has achieved good profits for three consecutive quarters.

Investment advice: We expect the company's 2024-2026 revenue to be 10.181/13.563/17.717 billion yuan, respectively, up 43.10%/33.22%/30.63% year on year, and the company is expected to achieve net profit of 0.4/0.576/0.791 billion yuan in 2024-2026, up 82.17%/43.97%/37.22% year on year, respectively, corresponding to PE 16.8/11.7/8.5X for 24-26, maintained “Highly recommended” rating.

Risk warning: increased industry competition, channel expansion falling short of expectations, risk of rising costs, etc.