Incident: On August 22, the company released its 2024 mid-year report. 1) 2024H1 achieved operating income of 1.694 billion yuan/YoY +1.67%, net profit attributable to mother 0.042 billion yuan/YoY +2.20%, net profit not attributable to mother 0.031 billion yuan/YoY +28.30%; 2) 2024Q2 achieved operating income of 0.888 billion yuan/YoY -2.30%, net profit to mother 0.036 billion yuan/YoY- 6.99%, net profit of non-return to mother 0.028 billion yuan/year over year +2.03%. 3) The company plans to pay an interim dividend for the first time, with a cash dividend of 1.09 yuan for every 10 shares, for a total of 15.1 million yuan, accounting for 35.6% of 2024H1's net profit to mother.

Store expansion is expected to accelerate in the second half of the year, and online business will maintain steady growth. 1) By channel, ① Offline channel store expansion is expected to accelerate. 2024H1, the company opened a total of 19 new stores, located in East China (10), South China (3), and Central China (6) regions, Q2 accelerated month-on-month (2024Q1 added 4 stores), mainly concentrated in East China; closed 25 stores (2024Q1 closed 12), East China/South China/Central China closed 7/2/16 stores respectively, and Central China promoted closure adjustments; By the end of June, the company had a total of 463 stores, with +3/+2 stores already signed for business., expected More than 36 new stores will be added in the second half of the year. ② Online business continues to grow steadily. The company achieved e-commerce revenue of 0.35 billion yuan/YoY +16.44%. The company accelerates the operation of online channels, explores grass-sharing platforms such as Douyin and Xiaohongshu to carry out brand and product marketing, and relies on offline stores to develop O2O cooperation with platforms such as Meituan and Hungry. 2) By category, 2024H1 milk powder/food/supplies category/cotton spining/toy and travel category/mother and child service/supplier service revenue was +7.9%/-1.7%/-11.4%/-16.6%/-5.7%/-14.3%, respectively, reaching 10.2/1.5/2.6/1.0/0.04/0.01/0.1 billion yuan.

Q2 Gross margin declined year over year, and there was some optimization on the cost side. 1) On the gross profit side, 2024Q2's gross margin was -0.71 pct to 27.85% year-on-year. 2) On the expense side, the Q2 company's sales expense rate/management expense ratio was -0.01pct/-0.39pct to 19.29%/2.97%, respectively, and the financial expense ratio was -0.11pct to 0.90% year-on-year. 3) Overall, the net interest rate level of 2024Q2 attributable to mother was -0.21pct to 4.07% year over year, and the net interest rate level of non-return to mother was +0.14pct to 3.20% year over year.

Accelerate the promotion of private product brands and optimize omnichannel operations. 1) Accelerate the expansion of offline channels and strengthen collaborative development.

The expansion of offline channels was comprehensively accelerated during the reporting period, and in-depth penetration was carried out into emerging business districts in Tier 1, 2, and 3 cities. 19 new stores were opened, and the number of new stores was +138%; the company made fine adjustments to Bebebear's operations to enhance collaborative operation capabilities with Beibebear in various aspects such as talent deployment, supply chain management, and new retail models. 2) The integration of online and offline integration has achieved remarkable results. During the reporting period, the company expanded the operation of Douyin's local lifestyle channel and attracted more target customers to spend in stores through services and products. 3) R&D innovation and multi-scenario marketing drive the growth of its brands. The company continues to strengthen independent research and development of its brands, focusing on breakthroughs in the nutritional food category. In the DHA product field, it has successively developed products covering different price ranges, such as Holanshi Zhizhuoxing DHA gel candy, DHA algae oil, small popcorn, etc., and has launched a variety of new products in food supplements, paper products, cotton products, etc. At the same time, the company is also continuously exploring new platform businesses to achieve multi-scenario marketing.

Investment advice: The company is a leading maternal and child chain with outstanding reputation, ability to adjust product portfolios, and efficiency advantages. After acquiring BeiBei Bear in 2021, stores and supply chains were gradually adjusted to complement each other in the region and strengthen the leading position. At the same time, the online business has continued to develop in recent years, in line with industry trends. 2024Q2 accelerates store opening and optimizes product channels throughout the year. In the future, it will continue to expand the layout of offline stores, promote the integration of dual-line resources, improve operational efficiency, and actively innovate to drive brand value addition. We expect the company's 2024-2026 revenue to be 3.51/3.763/3.988 billion yuan, respectively, net profit to mother of 0.11/0.133/0.144 billion yuan, EPS of 0.79/0.96/1.04 yuan/share, respectively. The current stock price corresponds to PE 13/11/10 times, respectively, giving a “buy” rating.

Risk warning: 1) Disturbances in the consumer environment have caused the exhibition store and single store model to fall short of expectations for a long time; 2) supply chain optimization falls short of expectations; 3) industry competition has seriously intensified.