Frozen food industry leader ANJOY FOOD has delivered a half-year report showing "increased revenue but decreased profits."

Recently, ANJOY FOOD (603345.SH, 02648.HK) released its interim report, achieving revenue of 7.604 billion yuan during the period, a modest increase of 0.8% year-on-year. However, profitability showed weakness, with net profit attributable to shareholders reaching 676 million yuan, down 15.79% year-on-year. Non-GAAP net profit was 603 million yuan, declining 21.85% year-on-year, while basic earnings per share stood at 2.31 yuan, decreasing 16% year-on-year.

This marks the first time since ANJOY FOOD's listing that interim net profit attributable to shareholders has declined, with the double-digit decrease highlighting mounting profitability pressures.

**Rising Costs Drive Gross Margin Decline**

Breaking down quarterly data, ANJOY FOOD encountered challenges from the start of this year. First quarter revenue reached 3.6 billion yuan, down 4.13% year-on-year and 11.11% quarter-on-quarter. Net profit attributable to shareholders was 395 million yuan, declining 10.01% year-on-year and 9.88% quarter-on-quarter, with both revenue and profitability under pressure.

Second quarter revenue conditions improved somewhat, recovering to 4.005 billion yuan. However, profitability deteriorated further, with net profit attributable to shareholders at 281 million yuan, falling over 20% both year-on-year and quarter-on-quarter.

Looking at overall interim performance, while ANJOY FOOD's first-half revenue remained roughly flat compared to the same period last year, this represents a significant drop from the growth rates of 35.47%, 30.7%, and 9.42% recorded in the interim periods of 2022-2024 respectively. The current 0.8% minimal growth shows a stark contrast. On the profitability front, this marks the first interim decline in net profit attributable to shareholders.

The primary reason relates closely to rising raw material prices.

During the first half, due to increased procurement prices for raw materials such as crayfish and fish paste, ANJOY FOOD's operating costs rose 5.29% year-on-year to 6.044 billion yuan. Gross profit fell 13.5% to 1.561 billion yuan, corresponding to a gross margin of 20.52%, down 3.39 percentage points year-on-year.

Research reports also indicate that intense competition in the current frozen food industry has led ANJOY FOOD to increase promotional efforts, which has also weighed on gross margin performance.

Expenses remained relatively stable. In the first half, ANJOY FOOD's selling expenses declined 4.84% year-on-year, while administrative expenses fell 14.36% year-on-year, mainly due to reduced advertising, promotional expenses, and decreased allocated share-based payment expenses.

Despite profitability pressures, ANJOY FOOD maintained substantial dividend payments. The company plans to distribute an interim dividend of 1.425 yuan per share (before tax), totaling 473 million yuan, accounting for 70.02% of the period's net profit attributable to shareholders.

**Only Pre-made Dishes Achieve Growth**

As China's leading frozen food company, ANJOY FOOD's core business consists of three main categories: frozen prepared foods, frozen dishes, and frozen noodles and rice products. The company operates brands including "Anjoy," "Mr. Frozen," "Anjoy Kitchen," "Honghu Temptation," and "Liuwu."

However, looking at first-half performance, the company's business structure showed divergence, with only pre-made dishes (frozen dish products) achieving growth while other categories showed sluggish sales.

Specifically, ANJOY FOOD's largest business segment, frozen prepared foods, generated revenue of 3.759 billion yuan, down 1.94% year-on-year. Research reports point out that since the second quarter, restaurant demand pressure has intensified, and this year's hot weather combined with low pork prices have been unfavorable for prepared food sales, amplifying short-term fundamental pressures. Frozen noodles and rice products revenue reached 1.241 billion yuan, down 3.89% year-on-year. Agricultural and sideline products and other income was 181 million yuan, declining 4.57% year-on-year. Other businesses fell even more dramatically by 65.6% year-on-year. Only frozen dishes maintained growth, with sales of 2.416 billion yuan, an increase of 9.4%, becoming the sole "bright spot" supporting revenue.

In fact, pre-made dishes have been the "core engine" of ANJOY FOOD's performance growth in recent years, but the current trend of slowing growth has become increasingly evident.

In 2022, the company successively acquired Xinhongye and Xinliuwu to formally expand its pre-made dish layout. That year, dish products surpassed noodles and rice products to become the second-largest business, with revenue more than doubling to 3.024 billion yuan. However, in 2023 and 2024, this business segment's growth rate gradually slowed to 29.84% and 10.76% respectively. In the current interim period, it further declined to 9.4%, with growth momentum gradually weakening.

Industry analyst Zhu Danpeng previously analyzed that ANJOY FOOD's growth in the past two years mainly relied on pre-made dish business, but the delay in national standards for pre-made dishes has created significant constraints on corporate development. "Without established national standards, sustainable growth and overall performance won't be very impressive."

Another noteworthy development is that ANJOY FOOD listed on the Hong Kong Stock Exchange in July this year, becoming a dual-listed A+H shares company.

According to the company's previous disclosure, one of the core purposes of the Hong Kong listing is to accelerate internationalization strategy and overseas business expansion.

However, based on first-half data, ANJOY FOOD's overseas business has yet to show improvement. In the first half, the company achieved revenue of 72 million yuan in overseas markets, less than half of last year's full-year figure (168 million yuan), accounting for less than 1% of total revenue.