Introduction to this report:

We believe that Shanxi Fenjiu has sufficient growth tools, continues definitively during the industrial transition phase, that the company's growth logic has not been reversed, that it has an advantage in backup amounts in the medium term, and that “Boss Fen” is expected to reshape the industry pattern.

Key points of investment:

Maintain the “Overweight” rating and maintain the target price of 325.5 yuan. We believe Fenjiu's growth tools are sufficient, the company's growth logic has not been reversed, and profit forecasts are maintained. EPS is expected to be 11.04 yuan, 13.70 yuan, and 16.72 yuan respectively in 2024-26.

During the liquor turning point, Fenjiu had sufficient tools to grow and continued definitively. 1) 2024Q2 is a turning point for the industry. The overall sales progress of Fenjiu is in line with expectations. The overall inventory is healthy. Lao Baifen and Qinghua 20 are still expanding south of the Yangtze River. Fenjiu maintains a good relative balance between growth rate and stability, and continues to be determined; 2) It is expected that subsequent Fenjiu will continue to strengthen refined cost management, and it is expected that the channel strategy of low-level blue and old Baifen will continue to increase; 3) We believe that Fenjiu still has strong channel appeal at the turnover level. While relieving pressure on Bofen, it can also indirectly lift the product structure, blue and white 20 still has room for large share concentration, and Blue and White 30 still has low levels as a starting point. The company's short- and medium-term growth tools are relatively sufficient.

In this cycle, Fenjiu achieved a logical transformation of growth from “exogenous” to “endogenous.” From an industry perspective, we believe that the essential logic of the two rounds of liquor industry adjustment is the product structure settling due to falling demand. However, we have also observed that Fenjiu is one of the few listed companies that have undergone fundamental changes: the company has completely completed the transformation of its management system and business philosophy in this cycle, formed a “strong competition and strong incentive” sales team with marketization as the core operating mechanism, and completely completed the transformation of the channel model. Therefore, from a fundamental point of view, Fenjiu relies on endogenous factors to drive growth and countercyclical ability Qualitative improvement.

By grasping the logic of shares, Boss Fen is expected to reshape the new order. We believe that this round of industrial adjustment may be characterized by “relatively mild, slow slope, and lengthening of time”. The product attributes and industrial logic of liquor may be undergoing trend changes. In this dimension, the quantitative basis represents space for subsequent prices. “Occupying the consumer's stomach” is a solid foundation for high-end, and the advantages of enterprises with backup amount logic in the medium term will gradually strengthen. We believe that Fenjiu naturally has advantages in brand and fragrance technology, and naturally fits the share logic. The company may still achieve total expansion and continuous increase in influence during the inventory cycle, and reshape the high-end pattern in the next cycle.

Risk factors: food safety, team changes, industrial policy, tax policy changes, etc.