The dual incentive plan was released, and the 3-year net profit target compound growth rate of 30% growth was highlighted. Recently, the company announced the implementation of the dual incentives of the employee stock ownership plan and the stock option incentive plan. The performance assessment goals of the employee stock ownership plan and the stock equity incentive plan are the same. The company-level performance assessment is based on net profit of 0.2 billion yuan in 23 years. The target net profit compound growth rate for 24-26 years is 30%, and the trigger value is 12%. 100% exercise requires at least 30% compound growth, and the impact of the team's performance above the top level is strong. We believe that the dual incentive plan accounts for 2.65% of the total share capital. Chairman Ni Guotao did not participate in motivating and benefiting key employees. The coverage is accurate and the motivation is strong. Currently, the team has sufficient internal fighting spirit and development confidence, and the growth is outstanding.

It was reiterated that the company is benefiting from the beta increase in the online penetration rate of liquor, anchoring the portrayal of diverse groups, reaching transformation through new channels for new people, and that the growth rate of 1,000 yuan and high-port food and alcohol price bands still has potential. We believe that online alcohol sales are still on the emerging blue ocean circuit. 1) Judging from user portraits: the main consumer groups of traditional alcohol offline sales are mainly middle-aged men around the age of 40-50. Currently, young people aged 30-40 have gone through the cultivation of multiple types of e-commerce consumption habits, and the frequency of drinking and single use are relatively low, and it is often difficult to obtain the resource tendencies of core terminal tobacco hotels. In 2023, alcohol consumers aged 31-40 on Kuaishou/Douyin platforms will account for 38/ 63%, respectively% . At the same time, the epidemic cultivated demand-side e-commerce consumption habits, and some core alcohol consumer groups in the 60s and 70s gradually catalyzed online, transforming online purchasing habits and boosting the expansion of new channels.

2) Judging from the price segment distribution, in alcohol sales on the Douyin platform in 2023, the price band of 109-408 yuan/919 yuan or more accounted for relatively high sales, reaching 33.8%/36.8% respectively. The popular price band of around 100 yuan plus the core single product price band had excellent sales performance, and there is potential for segmented price band growth. The company's core development, such as the Luzhou Laojiao Six-Year Cellar Series single products, and some famous wine gift boxed products are anchored in the core price ranges of around 100 yuan and 1,000 yuan respectively, and growth potential can be expected. The company deepened supply chain cooperation around the 100 yuan price band and set up a high-port food and wine circuit. During the 618 period, sales of the large series of customized liquor products exceeded 0.08 million boxes, which is expected to continue to promote profit conversion.

Looking at recent business conditions, based on operating capacity, 618 Liquor performed well online, and strong growth can be expected throughout the year. The company's 24Q1 revenue/profit ratio was +107%/+47%, which greatly exceeded market expectations. Recently, 618 Liquor's online performance is still impressive. During the JD 618 period, the GMV for the liquor category was +30% compared to the same period, and the growth rate of traditional shelf e-commerce was stable. The company enabled leading liquor brand GMV to grow 50% + year over year during the 618 period, with impressive performance. In addition, the company added a cooperative Beijing Xifeng Liquor flagship store in June 2024. The subsequent expansion of leading brands, expansion of category resources, and deepening cooperation in product development will jointly drive long-term growth.

In the long run, we believe that the strong development of alcohol online will accelerate the elimination of traditional terminals without a core customer base. The company has its own business barriers and first-mover advantage, and is expected to benefit from increased industry concentration dividends.

We believe that in online alcohol sales, the demand for fidelity, instantaneity, and cost performance dominates purchasing decisions. As JD, Taobao, Douyin, etc. are deploying online and offline integration, hourly delivery and other related businesses, online sales are gradually beginning to take on the “last mile” delivery and business order requirements of some tobacco hotels. Under the characteristics of high timeliness and flagship store fidelity, it will accelerate the elimination of terminal tobacco hotels without core group buying customer resources.

Online alcohol sales are still in the blue ocean market, and the share is growing rapidly. We expect the online alcohol penetration rate to continue to rise to 30-40% in the next 5 years. Professional operators with official authorization, logistics and warehousing, and financial advantages will have an advantage in emerging channels, and industry concentration is expected to continue to increase.

The company's differentiated product system+strong supply chain advantage+strong data analysis jointly build core barriers, and strong growth can be expected.

Profit forecast and investment advice: As the first alcoholic e-commerce stock, the company is taking advantage of the trend of online alcohol expansion, and strong operational and supply chain capabilities are expected to drive rapid growth in the company's performance. We expect the company's 24-26 revenue to be 3.89, 4.95, and 6.1 billion yuan, respectively. Net profit attributable to mother was 0.27, 0.35, and 0.44 billion yuan, respectively. The current stock price is 13.6x the 24-year P/E, maintaining a “Highly Recommended” rating.

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