Core Viewpoint - The leading domestic flavor company Huabao Co., Ltd. has reported a significant decline in its operating performance for the first half of 2025, with revenue and net profit experiencing steep drops, indicating a collapse in its profitability system [1] Financial Performance - The company's operating revenue for the first half of the year was 606 million yuan, a year-on-year decrease of 8.41% [1] - The net profit attributable to shareholders plummeted to 13.42 million yuan, down 87.95% year-on-year, marking the largest decline since its listing [1] - Earnings per share fell sharply from 0.18 yuan in the same period last year to 0.02 yuan, indicating a near exhaustion of investor returns [1] Profitability Indicators - Key profitability metrics have all declined, with the net profit margin dropping from 17.28% in the first half of 2024 to 2.95% [1] - The gross profit margin decreased from 53.93% to 47.78% [1] - The weighted average return on equity fell to 0.20%, reaching historical lows and continuing a six-year downward trend [1] - The period expense ratio increased to 42.98%, with selling expenses rising by 16.35% to 68.36 million yuan and management expenses surging by 24.77% to 161 million yuan, further eroding profit margins [1] Business Structure Challenges - The main product category, edible flavors, which accounts for 63% of revenue, saw a sharp decline of 22.54% [1] - Although food ingredients and daily-use flavors grew by 4.80% and 34.47% respectively, these increases were insufficient to offset the overall revenue decline [1] - The net cash flow from operating activities shrank by 24.21% to 79.99 million yuan [1]

Core Insights - Huabao Co., Ltd. reported a significant decline in its operating performance for the first half of 2025, with revenue of 606 million yuan, a year-on-year decrease of 8.41%, and a net profit of 13 million yuan, down 87.95% year-on-year [1][3] - Key profitability indicators, including net profit margin, gross profit margin, and return on equity, reached new lows, indicating severe challenges to the company's profitability [1][3] Financial Performance - The net profit margin fell sharply from 17.28% in the first half of 2024 to 2.95%, marking six consecutive years of decline [3] - The gross profit margin decreased from 53.93% to 47.78%, while the return on equity dropped to only 0.20%, also reflecting a six-year downward trend [3] Operational Stability - The company faces ongoing pressure from deteriorating profitability, with inventory turnover days at 240.93, showing some improvement compared to the previous year [5] - The net cash flow from operating activities was 80 million yuan, a slight decline of 0.26% year-on-year, indicating weak growth despite remaining positive [5] - As of the first half of 2025, the debt-to-asset ratio was 6.68%, down 1.41 percentage points year-on-year, suggesting low financial leverage and manageable debt risk [5] Institutional Holdings - As of the first half of 2025, only one institutional investor held shares in Huabao Co., a significant decrease from 86 in the same period of 2024, reflecting a notable decline in investor confidence [7] - The company's market capitalization peaked at 49.424 billion yuan on November 29, 2021, but has since fallen to 12.102 billion yuan, requiring a 308.40% increase in stock price to return to its historical high, which poses substantial challenges given the current operational difficulties [7]

Investment Rating - The investment rating for the company is "Buy" (maintained) [1] Core Views - The company is actively reducing inventory, and there are positive expectations for whisky recruitment [5][8] - The RTD (Ready-to-Drink) division is expected to return to high-quality development, focusing on optimizing marketing expenses [7] - The company's revenue for Q1 2025 was 737 million yuan, a decrease of 8.11% year-on-year, while the net profit attributable to the parent company was 181 million yuan, an increase of 7.03% [9] Financial Performance Summary - For 2024, the company reported total revenue of 3.048 billion yuan, a decrease of 6.61% year-on-year, and a net profit of 719 million yuan, down 11.15% [9] - In Q1 2025, the company achieved a gross margin of 69.7%, an increase of 1.3 percentage points year-on-year, with a notable reduction in sales expenses [9] - The company expects revenue growth of 12.7%, 13.8%, and 15.3% for the years 2025, 2026, and 2027, respectively, with net profit growth of 12.3%, 17.2%, and 17.9% for the same years [9][11] Product and Market Insights - The company is launching new whisky products, including "Bailide" blended whisky and the "Laizhou" single malt whisky series, with recruitment and distribution expected to catalyze growth in Q2 [8] - The revenue from the pre-mixed drinks and flavoring segments showed a decline of 7.17% and an increase of 6.30% year-on-year, respectively, with pre-mixed drinks accounting for 87.8% of total revenue [9]

Investment Rating - The investment rating for the company is "Buy" (maintained) [1] Core Views - The company is actively reducing inventory, and there are positive expectations for whisky recruitment [5][8] - The RTD (Ready-to-Drink) division is expected to return to high-quality development, focusing on optimizing marketing expenses [7] - The company's revenue for Q1 2025 was 737 million yuan, a decrease of 8.11% year-on-year, while net profit attributable to shareholders was 181 million yuan, an increase of 7.03% [9] Financial Performance Summary - For 2024, the company reported total revenue of 3.048 billion yuan, a decline of 6.61% year-on-year, and a net profit of 719 million yuan, down 11.15% [9] - In Q1 2025, the company achieved a gross margin of 69.7%, an increase of 1.3 percentage points year-on-year, with a notable reduction in sales expenses [9] - The company expects to achieve revenues of 3.434 billion yuan, 3.907 billion yuan, and 4.504 billion yuan for 2025, 2026, and 2027 respectively, with year-on-year growth rates of 12.7%, 13.8%, and 15.3% [9][11] Product and Market Insights - The company is launching new whisky products, including "Bailide" blended whisky and the "Laizhou" single malt whisky series, with recruitment and distribution expected to catalyze growth in Q2 [8] - The revenue from pre-mixed drinks and flavoring segments showed a decline of 7.17% and an increase of 6.30% respectively in 2024 [9] Valuation Metrics - The current price-to-earnings (P/E) ratios for 2025, 2026, and 2027 are projected to be 34, 29, and 25 times respectively, maintaining a "Buy" rating [9]