Leading liquor e-commerce operator, spin-off retail to focus on internet marketing. Xinhua is currently a leading company in the alcohol e-commerce field. The company completed the divestment of the retail business in April 2022, focusing on the main Internet marketing business with its wholly-owned subsidiary Jiuaijihe as the main operator. In 2023, the company's Internet marketing business achieved revenue of 2,824 million yuan, a year-on-year increase of 27.5%. The revenue CAGR for the business reached 36% in 2016-2023. The explosive growth of the company's live e-commerce channels in the first quarter of this year and the increase in the contribution of Xintuo's brands and product lines greatly exceeded expectations. 2024Q1 achieved revenue of 1.02 billion yuan, +106.9% year-on-year, and achieved net profit of 94 million yuan, +47.1% year-on-year.

There is a major trend in the development of online liquor, and the penetration rate is low and the space is vast. In 2023, the size of the online alcohol market exceeded 120 billion yuan, an increase of 56.4%. Among them, liquor and condiments/wine/beer/foreign wine increased by 77.7%/14.8%/5.3%/4.7% respectively, and the scale of liquor and condiments reached 90 billion yuan, which is the main driving force for the growth of the online alcohol market. Currently, the penetration rate of online liquor is about 10% lower, while overall online consumption accounts for 28%. Currently, the online growth rate of liquor is exploding, catalyzed by live e-commerce. Online penetration may usher in an inflection point. In 2023, the sales growth rates of Liquor Douyin and Kuaishou reached 82.42%/290.8%, respectively. Analyze the underlying reasons for the acceleration: 1) consumers' cultivation of online consumption habits after the epidemic; 2) platform-side logistics distribution and vigorously promote the drainage of liquor subsidies; 3) Liquor companies actively embrace e-commerce; 4) Channel-side offline dealers and terminals partially seek online transformation due to declining channel profits and higher inventory. As the advantages of e-commerce platforms in terms of logistics, price, and consumer reach rate gradually become apparent, it is expected that the online growth rate of liquor will continue to grow rapidly in the next few years, and there is plenty of room for improvement in the penetration rate.

The company cooperated deeply with many leading wine companies such as Luzhou Laojiao and Fenjiu, and had scarce tickets to official stores. The company has been the first to get online officially authorized tickets from many wine companies. Many years ago, the layout had a first-mover advantage. Currently, it has more than 50 official flagship stores, which are deeply tied to Luzhou Laojiao and Shanxi Fenjiu. The revenue side of these two brands has reached 1 billion dollars, accounting for most of the company's revenue. The company has significant competitive advantages, rich marketing and management capabilities, and strong inventory management capabilities with abundant cash flow. It is expected to attract more brand cooperation in the future. In 2023, the company will expand brands such as Maotai health wine “Maoxian”, Gujing Gongjiu, Xi Jiu, and Wuliangye series wine, and subsequent new customer development is expected to contribute to the increase.

The company is grasping the channel trend, and the customized sector has strong growth potential under channel empowerment. The company began in-depth deployment of live e-commerce platforms such as Douyin and Kuaishou in the second half of 2023. Douyin e-commerce started quickly in less than a year, and Douyin's share quickly rose to double digits in 2024Q1. The company currently operates 12 stores on the Douyin channel. According to Jiuqian data, the total sales of the top five stores from January to April 2024 exceeded 100 million, an increase of 553% over the previous year, with a significant increase of 553% over the previous year. The company currently accounts for about 2:8 of its customized and standard products. Among them, customized products are mainly Laojiao's six-year cellar music, which is also a big hit product created by the company in recent years. The new product, Xianlin, developed in collaboration with Wuliangye this year, has strong ecological growth potential, making it the second largest single product after six years of Cellar Touqu. The Douyin channel is a natural fit for customized products. Empowered by the channel, it is expected that customized wine will be further accelerated as the customized new product matrix expands in the future.

Profit forecast: We expect revenue growth of 38%/26%/22% for 2024-2026, 34%/28%/23% for net profit to mother, 0.37/0.48/0.59 yuan for EPS, and 15/12/9X for PE, respectively.