1H24 preannounced results in line with our expectations

Dong-E-E-Jiao preannounced its 1H24 results, expecting attributable net profit to rise 31-43% YoY to Rmb695-760mn and recurring attributable net profit to grow 34-48% YoY to Rmb658-723mn, in line with our expectations.

Trends to watch

Earnings grew steadily in 2Q24. According to the preannounced 1H24 results, we estimate that the firm's attributable net profit grew 14-35% YoY to Rmb342-407mn in 2Q24, with a QoQ change ranging from -3% to +15%; recurring attributable net profit grew 19-42% YoY or 0-20% QoQ to Rmb329-394mn.

E-Jiao series maintains steady growth. According to the firm's announcement, in 1H24, E-Jiao Kuai leveraged its high quality and achieved healthy growth in sales value. The promotion of E-Jiao syrup, a blockbuster product, continued. The national brand marketing of Taohuaji E-Jiao cake paid off, and the sales volume of an instant E-Jiao powder product called Dong-E-E-Jiao Xiaojintiao gradually increased. In addition, the firm's "Huangjia Weichang 1619" has boosted demand for tonic for men and these products yielded solid and high-quality earnings growth in 1H24.

Steady progress in the "1238" development strategy. The firm is committed to a dual-driver growth model, emphasizing medicines and health products. It has systematically built and upgraded its brands and combined precise digital marketing with content delivery to fully empower channel development. In addition, the firm is actively expanding into the tonic business, which has changed the competitive landscape of the tonic market. It continues strengthening and expanding its main E-Jiao business, developing "E-Jiao+" and "+E-Jiao" businesses.

Plans to sell real estate business to further focus on main business. To further streamline its businesses and improve quality and efficiency, the firm announced on July 6, 2024, its plan to sell some properties in batches on a qualified property rights trading platform through public listing and transfer, with the pre-established value as the base price. We think this will help revitalize the firm's idle assets, increase the asset utilization rate, and boost asset operational efficiency.

Financials and valuation

We keep our 2024 and 2025 earnings forecasts unchanged. The stock is trading at 25.8x 2024e and 21.2x 2025e P/E. We maintain an OUTPERFORM rating and TP of Rmb77.8, implying 35.7x 2024e and 29.3x 2025e P/E, offering 38.1% upside.

Risks

Disappointing development of new product series; rising raw material prices.