Incident: The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 1.47 billion yuan, a year-on-year increase of 23.9%, and realized net profit to mother of -0.2 billion yuan, a year-on-year reduction in losses. According to calculations, the 23Q4 company achieved revenue of 40 billion yuan, a year-on-year increase of 6.8%, achieved net profit to mother of 0.1 billion yuan, and reversed losses. 24Q1 achieved revenue of 420 million yuan, a year-on-year decrease of 3.0%, achieved net profit of 0.2 billion yuan to mother, and reversed losses.

After 23 years of transformation and rebirth, the liquor business grew rapidly. The company's revenue for liquor/biochemical pharmaceuticals changed by +43.5%/-13.6% year on year, respectively. Among them, mid-range liquor (100-500 yuan) decreased by 23.2% year on year, and low-end liquor (below 100 yuan) increased by 81.5%. Looking at the subregion, both within the province and outside the province grew by 31.8%/119.0% respectively. The company's core markets in the province focused on Fuyang and Hefei, linking routes to create model markets, and outside the province focused on key cities such as first-tier cities and provincial capitals to do a good job of deepening market exploration and exploration. The gross margin of the liquor business increased 10.0 pct to 48.8% year on year in '23. It is expected to be related to cost reduction through lean production and cost control. Through the implementation of lean procurement, procurement costs will be saved by more than 30 million yuan throughout the year. The sales expense ratio and management expense ratio decreased by 4.6/1.1 pct year on year, respectively, the number of sales staff/administrative staff increased by 46%/4% year on year, and the remuneration of sales/management employees increased by 63%/34% year on year respectively. The treatment of individual employees was improved. At the same time as labor remuneration increased, the cost ratio decreased due to a decrease in promotional rewards and an increase in revenue scale. 23 Achieved net profit to mother for the full year - 0.2 billion yuan, a year-on-year reduction in losses.

24Q1 Middle and high-end liquors lead growth, and it is proposed to divest the pharmaceutical industry and focus on the development of the main business. In 24Q1, the revenue of the liquor business increased 32.7% year on year. Among them, high-end liquor/mid-range liquor/low-end liquor increased 178%/215%/8% year on year respectively, and the growth rate of medium and high-end liquor was higher. Revenue in and outside the province increased 21%/129% year on year respectively, and the rapid growth trend continued outside the province.

The 24Q1 gross margin increased 17.3 pct year over year to 44.5%, which is expected to be related to product structure improvements and scale effects. The 24Q1 sales expense ratio and management expense ratio changed by 1.4/+1.2pct, respectively, and the comprehensive net margin increased 13.7 pct to 4.2% year over year, achieving profit for 4 consecutive quarters. The company announced that it intends to transfer 92% of the shares of the holding subsidiary Golden Sun Pharmaceutical through public listing, which will help the company further focus on the development of its main liquor business.

The momentum for reform is strong, and it is recommended to focus on it. After 22 and 23 years of adjustments, the company has experienced positive changes from top to bottom. Combined with the latest performance and slightly adjusted profit forecasts, the company's revenue for 24-26 is expected to be 16.0/20.2/2.67 billion yuan respectively, with a year-on-year growth rate of 9.0% /26.4%/31.7%, and net profit to mother of 0.7/28/60 billion yuan respectively. It is recommended to pay attention to maintain the “increase” rating.

Risk warning: competition in the provincial market intensifies; new product development falls short of expectations; reform results fall short of expectations