The trend of online alcohol expansion continues, the 618 e-commerce promotion is coming, live streaming of liquor is booming, and the category performance is worth looking forward to. Online liquor has developed rapidly in recent years, and there is strong certainty about online capacity expansion. In 2023, the online alcohol market size exceeded 120 billion yuan, and sales increased by more than 50% year on year. Among them, the scale of liquor/flavored wine reached 90 billion yuan, and sales increased 77.7% year on year. Among them, the growth rate of live streaming of drinks was outstanding. Take Douyin as an example. In 2023, the GMV sales volume of Douyin drinks reached 24.7 billion yuan, an increase of about 99% over the previous year.

Recently, Douyin's 24Q1 alcohol sales surpassed 10 billion dollars and continued to grow; according to the Tmall 618 first-day report on May 20, sales in the liquor industry increased 147% year-on-year on the first day. Among them, nearly 30 Taobao Liquor Live streaming booths were launched simultaneously, and live streaming sales increased by more than 1,300%. We believe that the current 618 promotion is gradually kicking off, the liquor category (especially the liquor live broadcast) remains impressive and growing, and the industry penetration logic continues to be verified.

Once again, the core logic of Xinhuadu is reaffirmed: the first e-commerce liquor stock; emphasis is placed on the rapid expansion of online liquor beta+ companies; strong supply chain and strong operating capabilities. The business model is highly scarce, and strong growth can be expected.

On industry trends: The rapid development of online liquor sales is the result of resonance between supply and demand. The core driving force is 1) supply-side wineries tend to have a positive attitude towards online sales, deepening cooperation models such as self-operated channels and professional operation teams; 2) High pressure on traditional channels on the channel side, due to capital turnover+storage requirements, some sources flow to e-commerce channels; 3) Cultivating consumers' online consumption habits during the pandemic, and the catalyst ratio is high; 4) The platform side favors strong circulation, large products, and high-value categories such as liquor due to traffic demand. Subsidies have boosted the rapid growth of categories. We believe that online sales of alcohol are currently undergoing a shift from rugged growth in the early stages to a standardized operation stage. Operator qualifications are continuously strengthened, and the trend of industry leadership concentration is prominent, which favors platform providers such as Jiujihe, which have strong supply chains, strong financial reserves, strong back-office data processing capabilities, and successful cooperation. Take Douyin as an example. With the new live streaming regulations and the increase in security benefits, about 20-30% of Doudian stores have suspended operations since January '24. CR10 for alcohol industry products reached 12.17% in April, a significant increase from month to month.

On company barriers: Based on data research, strong supply chain advantages help establish a basic moat, live streaming platforms create a second growth curve, and customized products drive profit release. Under the logic of increasing category penetration, Jiuaizhihe forwardly lays out the official flags of liquor brands on various platforms based on data research. Their operating qualifications are somewhat exclusive, and the scarcity of business models is highlighted. With years of operation, the company has accumulated rich brand resources, cooperated deeply with liquor brands such as Luzhou Laojiao and Shanxi Fenjiu, etc., and also expanded multi-brand cooperation such as Langjiu, Maotai Health Liquor, Wuliangye, Gujing Gongjiu, Xi Jiu, Shuijingfang, etc., to continuously strengthen the e-commerce supply chain system and broaden product categories. At the same time, the company is actively developing and positioning high-port food and wine products of 0-200 yuan per bottle with leading wine companies, which are in line with mainstream prices on online platforms and benefit from the dividends supported by strong public demand for liquor. Live streaming sales are expected to open up a second growth curve.

At the same time, on the profit side, the company increased the revenue share of customized underwritten products to drive profit side release, deepened cooperation with leading brands and increased contributions from customized products, and strong growth can be expected.

Profit forecasting and investment suggestions: With the introduction of traditional retail business, the company continues to strengthen the e-commerce supply chain system, broaden product categories, increase the share of revenue from customized underwritten products to drive profit side release, deepening brand cooperation+increasing the contribution of customized products, and strong growth can be expected. The 24Q1 revenue/profit ratio was +107%/+47%, partly affected by the New Year's Festival misalignment, but it also initially realized its rapid growth. We expect the company's net profit to be 2.7/3.3/40 billion yuan respectively in 24-26, +33%/+25%/+20%. The current stock price corresponds to the 24-year P/E of 19x, maintaining the company's “Highly Recommended” rating.

Risk warning: risk of weak retail environment; risk of increased market competition; risk of fluctuations in e-commerce platform operations