Incident: The company released its 2023 annual report. In 2023, it achieved total operating income of 1.21 billion yuan, and achieved net profit of 90 million yuan, +18.4% year over year; in the 2023 single Q4, total operating income of 270 million yuan, +42.03% year over year, achieved net profit to mother of -16 million yuan, and a significant reduction in losses.

At the same time, the company plans to distribute a cash dividend of 1.3 yuan (tax included) for every 10 shares.

The product structure has been significantly improved, and expansion within the province has been consolidated and expanded outside the province. 1. By product structure, products with a retail price of 100 yuan/500 ml or more achieved revenue of 580 million yuan (+46.0%), increasing the revenue share by 7.3 percentage points to 47.3%; revenue below 100 yuan achieved revenue of 490 million yuan (+14.3), and the revenue share fell 3.3 percentage points to 40.5%. The company's product structure has improved significantly. 2. Looking at the subregion, the province achieved revenue of 81 million yuan (+27.3%), and outside the province achieved revenue of 370 million yuan (+20.6%). The basic market within the province has been effectively consolidated, and there has been steady expansion outside the province. 3. By channel, the channel distribution model achieved revenue of 950 million yuan (+24.2%), the channel direct sales model achieved revenue of 150 million yuan (+34.3%), and the e-commerce platform achieved revenue of 88 million yuan (+7.5%). The direct sales channel growth rate was remarkable, and channel control continued to increase.

The operating potential continues to improve, and the quality of operations has improved markedly. 1. Benefiting from the continued improvement in sales of products priced at 100 yuan or more, the share of revenue increased significantly, and gross margin increased 1.0 percentage point over the same period last year to 63.0%. 2. In terms of expenses, the total cost increased by 18.2% to 440 million yuan, benefiting from the high increase in revenue scale. The cost ratio decreased 1.7 percentage points year-on-year to 36.7% due to the scale effect. 3. The contract debt at the end of 2023 was 81 million yuan, +39.6% year-on-year, and the reservoir was further expanded; net operating cash flow in 2023 was 100 million yuan, +3214% over the same period last year, with a significant improvement in operating quality.

The pace of deep adjustments is remarkable, and the upward trend continues at an inflection point. The company focuses on product structure upgrading, continues to promote marketing transformation, and comprehensively promotes wine tourism integration. The pace of in-depth adjustment is remarkable: 1. Focus on resources to cultivate core products such as national virtue, family virtue, human virtue, export type, etc., and actively lay out human virtue to seize the price of 150-200 yuan. Qinghai has fully introduced Guozhizhen's vintage products, and the pace of product structure upgrading is obvious. 2. Promote marketing transformation, implement the “Skynet Project” strategy of direct-run specialty stores, 100 core affiliates, thousands of core terminals and 10,000 sales terminals, and introduce a core terminal affiliate operation model, and significantly increase channel power. 3. The national layout is more clear, continuously consolidating the Qinghai base market and the marketing base in Gansu; outside the province, it focuses on strategic core markets such as Jin, Shan, and Yu, and actively lays out spot markets such as Wuxi, Fuzhou, Nanning, and Zhangjiakou, laying a solid foundation for deep nationalization, and the growth space continues to expand.

Profit forecasting and investment advice. EPS is expected to be 0.34 yuan, 0.48 yuan, and 0.59 yuan respectively in 2024-2026, corresponding PE is 30 times, 21 times, and 17 times, respectively. The company benefits from consumption upgrades within the province and market development outside the province. It is optimistic about the company's long-term growth capacity and maintains a “buy” rating.

Risk warning: There is a risk of a sharp economic downturn, and the recovery in consumption falls short of the expected risk.