Core Viewpoint - Master Kong is facing a "mid-life crisis" characterized by a situation of "profit growth without revenue growth," as evidenced by its 2024 annual report showing a slight revenue increase of 0.29% to RMB 80.65 billion, while net profit rose by 19.79% to RMB 3.73 billion [2][5]. Group 1: Financial Performance - In the period from 2020 to 2024, Master Kong's revenue grew from RMB 78.72 billion to RMB 80.65 billion, with a compound annual growth rate of only 0.8%, significantly lower than the food and beverage industry's average growth rate of approximately 6% [6]. - The company's sales costs decreased by nearly RMB 2 billion in 2024 due to lower raw material prices and cost control measures, while the workforce was reduced by 2,005 employees, saving over RMB 280 million [6]. - As of the end of 2024, Master Kong's cash and cash equivalents amounted to RMB 7.52 billion, while short-term borrowings due within one year reached RMB 11.58 billion, resulting in a cash-to-short-term debt ratio of only 0.65, indicating financial risk [6]. Group 2: Business Structure Imbalance - The instant noodle segment has been declining for two consecutive years, with 2024 revenue at RMB 28.41 billion, down 1.3% from the previous year, following a 2.84% decline in 2023 [11]. - The beverage segment, which relies heavily on tea drinks, generated RMB 51.62 billion in revenue, a 1.3% increase, but the growth rate has sharply declined from 20.18% in 2021 to single digits [12]. - The market for instant noodles in China has been shrinking, with consumption dropping from 47.23 billion servings in 2020 to 43.12 billion servings in 2023, leading to a negative growth trend in the market [9]. Group 3: Development Challenges - Master Kong's distribution network has contracted, with the number of distributors decreasing by over 10% to 67,215, the lowest since 2021, which raises concerns about market penetration and channel stability [7][18]. - The company has struggled with product innovation, as new products launched in 2024 generated only RMB 800 million in sales, accounting for less than 3% of total revenue [19]. - High executive compensation persists despite the company's financial struggles, with 11 executives collectively receiving RMB 30.96 million in 2024, raising questions about management accountability [20].

Investment Rating - The report maintains an "Outperform" rating for the company [6][10]. Core Views - The company's profitability has improved due to price increases and declining costs, with expectations for revenue acceleration in 2025 [6][10]. - The beverage segment, particularly tea drinks, continues to show strong momentum, contributing significantly to overall profitability [8][10]. - The company is focused on enhancing its core products, optimizing gross margin structure, and innovating product offerings to meet changing consumer trends [9][10]. Financial Summary - Main revenue for 2023 is projected at 80,418 million, with a year-on-year growth of 2% [7]. - Net profit for 2023 is expected to be 3,117 million, reflecting a year-on-year decrease of 18% [7]. - The gross margin is anticipated to improve to 33.10% in 2024, up from 30.42% in 2023 [7]. - The company plans to distribute a total cash dividend of 37.45 billion for 2024, with a payout ratio of 100% [8]. Segment Performance - The beverage business achieved revenue of 516.21 billion in 2024, with a year-on-year growth of 1.3% [8]. - The tea beverage segment generated revenue of 217 billion, marking an 8.2% increase year-on-year [8]. - The instant noodle segment reported revenue of 284.14 billion, a slight decline of 1.3% year-on-year, but with improved gross margin [8][9]. Profitability Forecast - The company forecasts net profits of 4,239 million, 4,694 million, and 5,154 million for 2025, 2026, and 2027 respectively, with corresponding EPS of 0.75, 0.83, and 0.91 [10]. - The report suggests a PE valuation range of 18-22 times for 2025, translating to a per-share value range of 13.50-16.50 HKD [10].