Net profit from 24H1 fell sharply year on year, and operating pressure continued to be released

The company announced its 2024 semi-annual results announcement. 24H1's revenue is expected to be around 1 billion yuan, down 35% year on year (24Q2 revenue is expected to be 0.51 billion yuan, down 12.3% year on year); 24H1 is expected to achieve net profit of 0.11-0.13 billion yuan, down 69%-74% year on year (24Q2 net profit of 0.037-0.057 billion yuan, down 54%-70% year on year). External demand showed a weak recovery trend in the first half of the year, and the company actively eliminated inventory; 24H1 domestic revenue growth is expected to be limited. Low-end products such as Xiangquan will contribute revenue, compounding the rigidity of cost-side investment, which in turn dragged down overall profit performance. Looking ahead, we expect that the company will continue to carry out BC linkage and cost reforms, guarantee brand value, emphasize sales quality, and that Xiangquan will adapt to the trend of convergence growth. EPS is expected to be 1.08/1.25/1.43 yuan in 24-26, with reference to the 24-year average of 25xPE (Wind's unanimous expectation), considering that the company's 24-year performance pressure was fully released. It is a target that still has a nationalization logic. It is a target price of 38xPE for 24, with a target price of 41.07 yuan to maintain “purchase.”

Relieve marginal pressure, channel health is king

The decline in the company's revenue in the second quarter narrowed sharply compared to the first quarter (24Q1 revenue down 49% year on year). It is expected that terminal construction results will gradually begin to transform into customer repayment effects, and a positive BC linked market cycle will gradually take shape. By product, revenue contributions are expected to be small in 24Q2. Xiangquan's sales increased month-on-month, and the low-end series of alcoholic products also contributed to the main increase. The company's low-end product market performance was significantly better than that of sub-high-end products. By market, the company's demand and brand strength in the province were strong in the first half of the year. The surrounding area of Xiangxi increased, and the Xiangbei/Shonan area covered, and the township market continued to follow suit. Currently, dealers outside the province focus on price stability. Overall, the 24Q2 company continues to release pressure on the reporting side. The core is still to guarantee sales and inventory removal. We expect that the main goal of the internal reporting series is to maintain channel health. Xiangquan will adjust in line with popular price dividends. In the future, the company will continue to deeply cultivate the province and do a good job of sinking within the province.

The declining product structure and rigid cost investment caused Q2's profitability to fall far below revenue performance. On the one hand, the net profit growth rate of Q2 was significantly lower than the revenue performance. On the one hand, the pressure on subhigh-end products and above was high. The company mainly sold at medium- and low-end prices in the second quarter; on the other hand, the company achieved the goal of safeguarding marketing and inventory elimination, while taking into account the restoration of consumer cultivation and market atmosphere. The sales expense ratio increased, which also had a certain impact on profitability. We expect that in the current consumer environment, the company will still be in a period of adjustment. We expect quarterly improvements in revenue/profit performance in 24, and the pressure will continue to be released.

Look forward to subsequent business improvements and maintain the “buy” rating

Considering weak terminal demand, the company's short-term operations are under pressure, and it will take time to absorb inventory and affect revenue growth, we lowered our profit forecast. We expect EPS of 1.08/1.25/1.43 yuan (previous 1.66/1.93/2.24 yuan), target price of 41.07 yuan (previous time 56.44 yuan), “buy”.

Risk warning: industry competition intensifies, macroeconomic performance falls short of expectations, food safety issues.