Matters:

Incident: The company released a performance forecast. In the first half of 2024, it achieved the estimated total operating income of 1 billion yuan, a year-on-year decrease of 35.1%; it is expected to achieve net profit of 0.11-0.13 billion yuan, a year-on-year decrease of 69.2% to 73.92%. According to forecast estimates, 2024Q2 corresponds to total operating income of 0.51 billion yuan, a year-on-year decrease of 12.3%, and corresponding net profit to mother of 0.037-0.057 billion yuan, a year-on-year decrease of 53.5%-69.9%.

Guoxin Food & Drink's opinion: 1) The 2024Q2 revenue deceleration narrowed sharply compared to Q1, and the transformation of the company's marketing model is beginning to show results. BC Linkage Closed Loop has basically been established, terminals are more motivated to participate in the company's consumer promotions, and the willingness of customers to pay back is gradually increasing. 2) Internal participation strictly controls prices, and medium- to low-priced alcoholic beverages such as Xiangquan contributed the main revenue; the number of banquets and bottling sales data in the province increased, and the performance was better than outside the province. 3) The downward shift in the product structure compounded the rigidity of cost investment, and the 2024Q2 net interest rate decreased by 9.9-13.9 pcts year-on-year. Considering the weak recovery in the business scenario, demand pressure for high-end liquor is still high next time, the company is determined to carry out marketing reforms in the short term, and the cost ratio is expected to remain at a high level; maintaining the previous profit forecast, EPS is expected to be 1.28/1.48/1.77 yuan in 2024-2026. The current stock price corresponds to PE at 32.7/28.1/23.6x, maintaining a “superior to the market” rating.

Commentary:

The revenue decline in the second quarter narrowed sharply from the first quarter, and the transformation of the marketing model showed initial results. In 2024Q2, the company's revenue is expected to drop 12.3% year on year. Along with the decline in the base for the same period last year, the deceleration narrows sharply from the first quarter. The results of the company's terminal construction are gradually reflected in the reporting terminal. As the sales situation improved, the customer's willingness to pay back increased. By product, in the first half of the year, demand pressure for high-end products and above in the liquor industry was high. The company strictly controlled internal sales volume. The price market performance was steady, and sales recovered, but their overall contribution was not high; popular price products such as the Alcoholic Hongtan and Xiangquan series contributed the main revenue, and the number of banquets and bottling consumption increased significantly. Looking at the subregion, brand strength and demand resilience were prominent in the provincial market in the first half of the year. The township market continued to sink, and sales indicators gradually improved; markets outside the province still focused on removing inventory and maintaining market order.

The product structure is declining, cost investment is rigid, profit margins are still under pressure along with the downward trend in the product structure, and the company's gross margin continues to decline. On the cost side, both 2024H1 and 2024Q2 sales expenses increased a lot, mainly because the company continued to push forward cost reforms and promote market sales during the off-season. The company insists on preferring expenses to the consumer side, continuing to build channels, and increase bottling policies for banquet scenarios; at the same time, the company takes into account the dealer's reasonable profit margin (not alcohol at the cost) to guarantee channel enthusiasm in the form of year-end rebates, etc. The net interest rate of the 2024Q2 company fell 9.9-13.9 pcts year on year, and profitability is still under pressure; in the short term, the company's investment costs stabilize the basic market. In the long run, the company's BC linked cost reform is expected to unleash its marketing potential.

Industry demand was still under pressure in the second half of the year. The company's own adjustments showed positive marginal changes. In the second quarter, the company's BC Linkage closed loop was basically established. Customers in the province were more willing to repay, and the basic market for popular prices was gradually consolidated. In the future, the company will continue to focus on markets and channels to strengthen model market construction within and outside the province: 1) the provincial market continues to expand the penetration rate of the blank market, strengthen dealer process assessments, and ensure real terminal opening sales data; 2) Focus on building a core model market. By the end of June, the company has launched 11 model markets and continues to carry out consumer activities, and is expected to gradually contribute to sales growth in the second half of the year.

Investment advice: Short-term fundamentals are still under pressure. Maintaining the “better than the market” rating Considering the weak recovery in the business scenario, demand pressure for high-end liquor will still be high next time. The company is determined to carry out marketing reforms in the short term, and the cost ratio is expected to remain at a high level. Maintaining revenue and profit forecasts, the company's operating income is estimated to be 2.41/2.65/3.04 billion yuan in 2024-2026, -15.0%/+10.0%/+15.0%; the company's estimated net profit to mother is 0.42/0.48/0.57 billion yuan, -24.3%/19.1% YoY, corresponding EPS is 1.28/1.48/1.77 yuan, respectively. The current stock price corresponds to a valuation of 32.7/28.1/23.6x, maintaining the “better than the market” rating .

Risk warning

Demand recovery in the liquor industry fell short of expectations; competition for sub-high-end prices intensified; policy risks, etc.