1H23 performance is slightly higher than we expected.

The company announced 1H23 results: revenue from 2Q23 alone was 276 million yuan, + 25.1% compared with the same period last year, of which revenue from medium and high-end wines / ordinary wines was + 54.7% pesque 9.0%; net profit from home return / net profit deducted from non-home ownership was 0.31 trillion yuan, respectively, compared with the same period last year + 499 pm 77.2% Gross profit margin / sales expense rate / management expense rate / return net profit margin / deduction non-return net profit margin respectively compared with the same period last year-0.8/+0.3/-2.8/+1.8/+3.2pct. 1H23's performance was slightly higher than we expected, mainly due to a higher-than-expected boost from a low base.

Trend of development

With the steady progress of the high-end and nationalization strategy, there is still room for improvement before the target revenue epidemic. Single 2Q23 revenue year-on-year + 25.1% focus 2Q22 due to the low base affected by the epidemic, the current revenue is only about 85% compared with 2Q19, there is still room for improvement. 2Q23 gross profit margin fell slightly, mainly due to changes in the external revenue structure of alcohol products, and the gross profit margin of alcohol products increased steadily. In terms of products, the revenue of high-end wine / ordinary wine in 2Q23 year on year + 54.7%, and the proportion of medium-and high-grade wine in alcohol income increased from 59.8% to 71.6%. The effect of high-end strategy is significant. From a regional point of view, the revenue of 2Q23 Shanghai / Zhejiang / Jiangsu / other regions increased, accounting for 8.5% compared with the same period last year. Among them, the base in Shanghai for the same period is low, 2Q23 has returned to the original level, and international sales revenue is-1.6% year-on-year. In terms of dealers, the total number of 2Q23 dealers reached 1911, and the number of 2Q23 dealers increased by 5, of which the number of dealers in Shanghai and Jiangsu decreased slightly, while the number of dealers in Zhejiang and Jiangsu, Zhejiang and Shanghai increased by 4 and 8 respectively, and the nationalization strategy advanced steadily.

The company is consciously increasing its marketing investment, and the effect of brand building may be gradually reflected in the exploration. With green jade as the driving force, the company will play well the culture card, health card and Asian Games card, and actively carry out large-scale campaign to promote brands in many places. We estimate that phased marketing expenses may rise, driving the sales expense rate to go up, but in the medium and long term, it can gradually shape the strength of the high-end brand. According to the exchange of the company's investor activities, the company expects Qingyu's sales to nearly double this year and will become one of the drivers of the company's future performance.

We believe that the internal assessment and incentive changes after the increase of the company's holdings, and the implementation effect can be further tested.

The company said that the frequency and implementation of internal assessment have been improved, and the management of grass-roots employees has been gradually flattened, in order to achieve the effect of more work, and stimulate the work motivation of employees at all levels.

Profit forecast and valuation

We maintain the company's 2023-24 profit forecast of RMB 230 million and the target price of RMB 10.4, corresponding to 2023Universe 41.2x Pmax E, and the current share price corresponds to 2023Compact 24 40.9/31.1xP/E, with 0.9% upside and neutral rating.

Risk

Food safety risk; risk of macroeconomic fluctuations; market competition risk; cost control risk; increased risk of investment in fixed assets.