Incident: The company released its 2024 mid-year report. In the first half of the year, it achieved operating income of 1.067 billion yuan, +38.97% year over year; realized net profit of 0.062 billion yuan, +36.87% year over year; realized net profit deducted from non-mother was 0.02 billion yuan, -10.80% year over year. Among them, the company's revenue for the 2024 single quarter was 0.568 billion yuan, +29.20% year on year; net profit attributable to mother for the single quarter was 0.018 billion yuan, or -31.36% year on year; net profit without return to mother for the single quarter was 0.01 billion yuan, or -23.57% year over year. The second quarter was affected by the shipping incident, and the profit side was under pressure in the short term.

The domestic sales business benefits from brand awareness and all-category expansion strategies, and the export business is expected to recover rapidly as shipping prices fall

Domestic sales business: revenue of 0.464 billion yuan in the first half of 2024, accounting for 43.49%, gross profit margin of 16.65%. We judge that the company's share of supply among the original high-quality old domestic customers is expected to increase and expand brand awareness.

Export sales: Revenue of 0.603 billion yuan in the first half of 2024, accounting for 56.51%, gross profit margin 20.87%. Affected by the international political situation, the rise in shipping prices in the second quarter is expected to have an impact on the company's overall shipments. As shipping prices gradually fall in July, the overall export situation is expected to recover rapidly.

Product growth resonates at the same frequency, and profit margins are beginning to pay off

Plastic products had revenue of 0.792 billion yuan in the first half of 2024, accounting for 74.23%, or +37.24%; gross margin was 20.96%, up 2.30pct year on year; biodegradable products had revenue of 0.152 billion yuan in the first half of 2024, accounting for 14.22%, or +32.63% year on year; gross margin was 19.44%, up 3.77pct year on year.

The company's expenses increased due to project investment and construction and information technology innovation and technology research and development. In the second quarter, the company continued to increase the degree of production informatization and the construction of the Industrial Internet of Things; enhanced R&D capabilities and enhanced core competitiveness; further extended the industrial chain, rapidly expanded production capacity, and cultivated new business growth points; and increased expansion costs put pressure on the profit side in the short term. The company's 2024H1 sales expense rate/management expense rate/ financial expense ratio were 5.28%/6.40%/2.23%, respectively, compared with the same period last year. The management expenses rate and financial expense ratio for the period increased compared to the same period last year. The company expanded, and the corresponding increase in labor costs and depreciation led to an increase in expenses.

Profit forecasting and investment advice

In terms of domestic sales, the downstream demand side is still flexible; in terms of export sales, factors such as shipping issues are expected to gradually ease. Based on the results for the second quarter of 2024, we adjusted the company's profit forecast for 24-26. We expect the company's net profit to be 0.149/0.172/0.224 billion yuan for 24-26 (0.181/0.206/0.264 billion yuan for the previous 24-26 years), corresponding to the current PE price of 17/15/12 times, respectively, to maintain a “buy” rating.

Risk warning

The company's store expansion rate fell short of expectations; demand recovery in the restaurant industry fell short of expectations; operating cost control fell short of expectations; risk of changes in raw material prices; risk of market competition; risk of food safety.