Incident: The company released its 2023 semi-annual report. 2023H1 achieved operating income of 661 million yuan, an increase of 10.95%; realized net profit of 97 million yuan, a year-on-year decrease of 2.65%; achieved net profit of 92 million yuan after deducting non-return net profit of 92 million yuan, an increase of 1.21% over the previous year. According to calculations, 2023Q2 achieved operating income of 264 million yuan, a year-on-year increase of 52.98%; realized net profit of 119 million yuan, an increase of 290.28% over the previous year; realized net profit of non-attributable net profit of 017 million yuan, an increase of 209.3% over the previous year.

The company began to be greatly affected by the epidemic in the second quarter of '22. Under the low base of 23Q2, the improvement was significant. Revenue increased 53.0% year on year and 32.1% over 21Q2. By product, 23H1's mid-range and high-end barley liquor/regular barley liquor/private label wine revenue changed +3.1%/+39.5%/-47.6%, respectively. The high decline in the wine business is expected to be related to a lot of decline abroad. Looking at the domestic wine business alone, the domestic wine business is still growing. The tonnage price of 23H1 high-end barley liquor/ordinary barley liquor increased by 1.2%/15.9% year-on-year, respectively. Looking at the subregion, after excluding the e-commerce business, Qingli Liquor 23H1's revenue within and outside the province increased by 12.5%/5.8%, respectively. The growth within the province was even better, and markets outside the province, such as Gansu, are still in the process of recovering. 23H1 Dealers within and outside the province changed +2/-3 respectively, and remained stable.

23Q2 gross margin increased by 2.0% to 62.0% year-on-year. Due to the reduction in production of barley as a raw material in the first half of this year, the export price is expected to increase by more than 30%. It is expected that starting in the second half of this year, there will be some pressure on costs. 23Q2 Sales expenses/management expenses respectively changed +32.4%/-3.1% year on year. The rapid increase in sales expenses was mainly due to increased market investment in new media and other platforms in the first half of the year, which led to a large increase in advertising fees. The company invested more advertising expenses in national advertising, while regional advertising expenses remained flat and increased slightly. The amount of administrative expenses was basically the same, and the cost rate dropped a lot due to the increase in revenue. The net interest rate for 23Q2 was 7.3%, which was a loss for the same period last year.

We believe that Qinghai Province's economic recovery+consumption upgrade brings new opportunities for development, and the company is expected to enjoy the dividends of rising consumer prices brought about by tourism recovery and rising per capita income in the future. The company recently announced an equity incentive plan. The first-tier and second-tier revenue targets correspond to a compound growth rate of 17.0%/15.2% in 22-25, respectively. This equity incentive plan further binds the interests of core employees and is conducive to long-term development.

Investment suggestions: The company's revenue for 23-25 is expected to be 1,180/14.31/1,712 billion yuan respectively, with a year-on-year growth rate of 20.39%/21.31%/19.65%. The net profit of the returned mother is estimated to be 0.91/1.42/214 million yuan respectively, with a year-on-year growth rate of 21.43%/55.46%/50.89%, maintaining the “increase in holdings” rating.

Risk warning: Product structure upgrades fall short of expected risks, competition heightens risks, and expansion outside the province falls short of expected risks