Introduction to this report:

The decline in the company's 24Q3 revenue and profit declined, mainly due to a lower base and price stabilization in some categories. The demand side still needs to gradually recover.

Key points of investment:

Investment advice: Maintain an “Overweight” rating. Maintain the company's EPS forecast for 2024-2026 at 0.73, 0.83, and 0.95 yuan. Considering that downstream demand benefits from policy boosts and that some restoration is expected to drive the industry's overall valuation recovery, the performance improvement flexibility is expected to be relatively obvious under the C-side model where the company is mainly on the C-side and prices go with the market after considering a recovery in demand. It is expected that performance improvement flexibility will be relatively obvious. The target price will be raised to 24.9 yuan.

The performance was in line with expectations. 2024Q1-3's revenue was 0.511 billion yuan, -17.50% YoY, net profit to mother 0.068 billion yuan, -36.83% YoY, minus non-net profit 0.066 billion yuan, YoY -36.79%; 2024Q3 single-quarter revenue 0.183 billion yuan, -9.19% YoY, net profit to mother 0.025 billion yuan, -21.81% YoY net profit, minus 0.025 billion yuan YoY, -22.28% YoY. The purchase price of raw materials and terminal sales prices for some categories of 2024Q3 have stabilized, the superposition base has declined, and the decline in revenue and profit has narrowed.

The price side has stabilized, and sales cost efficiency has been optimized. 2024Q3's gross margin was -0.3 pct to 25.9% year on year. It is expected that the share of high-value beef and lamb revenue will decrease, the share of low-value pork and poultry will rise, the purchase price of some categories will steadily rise, and the company's price lock strategy will be less affected. The 2024Q3 sales/management/R&D/finance expense ratios were -1.8/+1.0/flat/+3.9 pct, respectively. It is expected that sales side fee control efficiency will improve, depreciation and amortization of new factories in terms of management expenses will increase, and financial interest income from financial management will decrease. 2024Q3 net margin -2.2pct YoY to 13.9%.

Upgrade stores, maintain gross profit margins, and look forward to improved demand. The company continues to upgrade stores, create an O2O model, and introduce Douyin to test in a small number of stores to improve store service coverage and boost single-store sales. The B-side strengthens professional assistance for dealers and increases the development of group meals. The company's pricing strategy focuses on maintaining gross profit margin and enhancing brand power, and the sales side expects a boost from a gradual improvement in demand.

Risk warning: increased market competition, rising raw material costs, food safety issues.