Incident: On the evening of August 21, 2024, the new “Master Master” series jointly developed by Fenjiu and Xinhuadu Technology Co., Ltd. was grandly unveiled at the Fenjiu Museum in Xinghuacun, Shanxi.

Working together to develop a series of cultural and creative products, the depth of cooperation between leading wine companies continues to deepen. The new “Master Master” series released this time was designed in collaboration with intangible heritage masters to capture the six golden moments in Fenjiu's history, and artistically and visually interpret them to present seven masterpieces: “Ling Qiong,” “Emperor Jian,” “Imperial Palace,” “Wanshang,” “Fenjiu Master Artist AP Style · Huadian”, and “Fenjiu Master Qishiwu Special Memorial Edition · Huazhang”, marking the further deepening of cooperation between Fenjiu and Xinhuadu. At the same time, Xinhuadu will also continue to provide systematic cultural product planning and marketing based on the top-level design of Fenjiu brand cultural products, build a “Fenjiu Active Cultural Product Ecosystem”, continue to empower the value and depth of the Fenjiu brand, and work for a long time to explore and build the value of more well-known brands.

Based on data research, rich brand resources build a deep business model moat. As the first alcoholic e-commerce company, the company has accumulated rich brand resources, cooperated deeply with brands such as Luzhou Laojiao, Shanxi Fenjiu, Wuliangye, Shuijingfang, and Langjiu, and developed high-quality customers such as Tsing Beer, Benfu, Yunnan Baiyao, Yili, Kimberly, Fangxin, Meijiajing, and Beatrice in addition to alcohol. Xinhuadu and Shanxi Fenjiu have been cooperating in depth for many years, forming a mutual trust cooperation model with stable operation and gradual increase in core product quotas. Relying on their strong back-office system support and years of experience in alcohol e-commerce development, they have excellent product development and sales experience. During the 24-618 period, Xinhuadu acted as the leading operating platform, enabling leading liquor brands to increase by 50% + year over year, and sales of the large customized liquor series broke through 0.08 million boxes, establishing strong growth throughout the year and further verifying its strong ability to operate its products. The company added a new cooperative flagship store in Beijing in June '24, and joined hands with Fenjiu to launch the “Master Master” series of new products in August. Cooperation with leading brands continues to deepen. It is expected that in the future, it is expected that further cooperation through brand expansion, category resource expansion, and product development will jointly drive long-term growth.

Online liquor sales are still in a rapid expansion channel. In the context of stricter platform rules and accelerated industry clean-up, leading high-quality operators are expected to enjoy centralized dividends, and the supply chain advantages of brand cooperation will become more prominent. We believe that the online development of alcohol (especially the liquor category) has been accelerating since 2020. The strong development of alcohol online will accelerate the elimination of traditional terminals without a core customer base. At the same time, under stricter platform supervision, online alcohol sales will shift from rugged growth to standardized operation, operator qualifications will be strengthened, and the industry will be eliminated at an accelerated pace, and 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 stock in alcohol e-commerce, the company released a dual equity incentive plan. The 3-year net profit target is in line with the 30% growth rate. Taking advantage of the trend of online expansion of alcohol, strong operation and supply chain capabilities are expected to drive the company's performance to grow rapidly. We expect the company's 24-26 revenue to be 3.89, 4.95, and 6.1 billion yuan, respectively. Net profit to mother was 0.27, 0.35, and 0.44 billion yuan, respectively.

The current stock price is 12X corresponding to the 24-year P/E, maintaining the “Highly Recommended” rating.

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