On October 28, 2024, the Three Squirrels released their 2024 third quarter report.

Key points of investment

Performance continued to have high growth potential, and efficiency optimization ensures stable gross margin. In 2024Q1-Q3, the company achieved revenue of 7.169 billion yuan (same increase of 56%), net profit due to mother of 0.341 billion yuan (same increase of 101%), and net profit not attributable to mother of 0.267 billion yuan (same increase of 212%). Among them, in 2024Q3, the company's revenue was 2.095 billion yuan (same increase of 24%), net profit attributable to mother was 0.052 billion yuan (same increase of 222%), and net profit not attributable to mother was 0.038 billion yuan (same increase of 210%). On the profit side, 2024Q3's gross margin also increased by 0.1 pct to 24.46%. Under the “high-end cost performance” strategy, the company was still able to maintain a stable gross margin, reflecting continued improvement in supply chain efficiency. Sales/management expense ratios decreased 0.2 pct/0.4 pct to 19.08%/2.52%, respectively, and net margin increased by 2 pct to 2.46%.

Acquire mass-selling snack brands and promote multi-category production capacity

On the channel side, the company's wholly-owned subsidiaries plan to invest no more than 0.36 billion yuan in total to reach in-depth cooperation with iSnacks, iDiscount, and Health Foods. It is hoped that the company's brand, supply chain, and management capabilities will be used to jointly expand the offline market and enter a new dairy beverage circuit. On the category side, the company plans to invest no more than 0.1 billion yuan in total in subsidiaries through capital increases, loans, etc., to increase investment and incubate new sub-brands such as big names, Coach Dragonfly, Oriental Yan Jiusheng, and Coco Guo, so as to transform existing advantages and resources into new fields and contribute to new growth. On the production capacity side, the company plans to further improve the construction of the East China Snack Industrial Park (Wuhu), the North District Supply Chain Intensive Base (Tianjin), and the Southwest Supply Chain Intensive Base (Jianyang) with no more than 0.2 billion yuan. Among them, the East China Snack Industrial Park has an overall plan to build seven major factories, with a total of 17 production lines. The company forms an industrial cluster effect through supply chain model innovation to achieve rapid product matching and supply chain cost reduction and efficiency based on changes in market demand, and further transform and upgrade to new quality productivity.

Profit forecasting

The company's “high-end cost performance” strategy has sufficient confidence in long-term development. Channel expansion and brand power building are achieved through SKU optimization/building/increased investment. The high-end cost performance strategy and all-category layout are expected to drive the company's continuous development and ensure the achievement of performance goals. EPS is expected to be 0.99/1.36/1.81 (previous value was 0.89/1.15/1.54) yuan respectively in 2024-2026. The current stock price is 27/20/15 times PE, maintaining a “buy” rating.

Risk warning

Downward macroeconomic risks, increased online competition, increased competition for premium locations in community snack stores, food safety risks, channel expansion falling short of expectations, and falling short of expectations in developing large single products.