Key points of investment

Weak recovery in demand, continued improvement in profitability

The company released its 2024 semi-annual report. 2024H1 achieved revenue of 23.744 billion yuan, -0.53% YoY, and realized net profit to mother of 4.705 billion yuan, +1.20% YoY. Under a weak recovery in demand, the company built a business model empowered by both beer and liquor, and continued to promote the development of a high-end strategy.

High-end beer continues to advance, and liquor is outstanding compared to the previous year

2024H1 beer business revenue was 22.566 billion yuan. We estimate that it was about -1.43% year over year, of which sales volume/average price was -3.4%/+2.0% year-on-year, respectively. In terms of grade, sales of mid-grade and above beer accounted for more than 50% of sales for the first time in the first half of the year. Sales of sub-premium beer and above achieved a year-on-year increase in units. Among them, e-commerce channel sales increased by more than 60% year on year, and sales of high-end beer and above increased by more than 10% year on year. By product, sales of Heineken, Lao Xue, and Red Jue increased by more than 20% year on year, while sales of the core product Xuehua Chunsheng achieved positive year-on-year growth. Looking at the subregions (including the impact on transactions between sales divisions), the Eastern District/Central District/Southern District achieved revenue of 10.958/6.49/6.038 billion yuan respectively, -2.13%/-1.80%/+2.56%, respectively. The company actively lays out the liquor industry. 2024H1 liquor business revenue was 1.178 billion yuan, +20.6% year over year. Among them, the national high-end single product “Summary” increased by more than 50% year on year, contributing about 70% of liquor revenue.

Structural improvements and cost dividends drive increased profitability

2024H1's gross profit margin was 46.91%, up 0.87 pct year on year, net profit margin was 19.82%, up 0.34 pct year on year, expense ratio 24.15% year on year, and +0.59 pct year on year. Among them, the sales/management/finance expenses ratio was 17.64%/6.27%/0.24%, respectively, +1.25/ -0.33pct, respectively. By business, the gross margin of liquor was +2.1 pct to 67.6%; the gross margin of the beer business was +0.6 pct to 45.8% year over year, and the EBIT rate was +1.1 pct to 28.2% year over year. After deducting related fixed asset impairment losses and expenses such as one-time employee compensation and placement expenses due to capacity optimization, the EBIT rate reached a record high of 28.3%, up more than 10 pcts from 2019H1.

Investment advice: Beer and Bai Shuang are beginning to show results. Considering the weak recovery in consumption, we expect the company's 2024-2026 revenue to be 39.64/41.135/42.633 billion yuan, respectively, with year-on-year growth rates of 1.82%/3.77%/3.64%, and net profit to mother of 5.379/5.665/5.961 billion yuan, respectively. The year-on-year growth rates are 4.39%/5.30%/5.23%, corresponding to a three-year CAGR of 4.97%, corresponding to a three-year CAGR of 4.97% 2024-2026 PE14/13/13X Considering that the company continues to advance in high-end technology, the empowering results of Beer and White are beginning to show results and maintain a “buy” rating.

Risk warning: high-end production falls short of expectations, liquor business expansion falls short of expectations, macroeconomics falls short of expectations