Key points of investment:

Incidents:

Zhenjiu Li Du published its 24-year semi-annual report. In 24H1, the company achieved revenue of 4.133 billion yuan, an increase of 17.5% year on year; adjusted net profit of 1.018 billion yuan, an increase of 26.9% year on year. The company's revenue growth is steady, and its ability to deliver results is outstanding.

The basic market of fine wine is growing steadily, with Li Du leading the growth rate

Zhenjiu: 24H1 Zhenjiu achieved revenue of 2.7 billion yuan, an increase of 17.2% over the previous year, accounting for 65.4% of revenue. In terms of volume price, sales volume/tonne price of rare wine increased by 7.9%/8.6%, respectively. The Zhen15, Zhen30 series and high-end light bottle series grew relatively well. Combined with the increase in the size of individual dealers, this led to high-quality growth of fine wine, and a sharp rise in volume and price. At the beginning of this year, the company launched 2013 real vintage wine, and in late May, it launched a feast created in a banquet scenario. The product matrix continues to be rich. On the profit side, the gross margin of Zhenjiu 24H1 was +1.2pct to 59.2% year-on-year, mainly due to the increase in revenue from products with subhigh-end prices and above, as a result of the gradual replacement of home-brewed base wines by the company.

Li Du: 24H1 Li Du achieved revenue of 0.67 billion yuan, a year-on-year increase of 37.9%. The growth rate was higher than that of the company as a whole, and its revenue share increased to 16.3%. In terms of volume price, Li Du's sales volume/ton price increased by 30.2%/5.9% year on year, respectively. Li Du's three major single products have maintained rapid growth, and on the basis of continued potential within the province, market penetration outside the province has increased. On the profit side, Lidu's gross margin dropped slightly by 2pct to 66.8% due to the increase in the share of sub-high-end products.

Xiangjiao: 24H1 Xiangjiao achieved revenue of 0.45 billion yuan, a year-on-year increase of 2.4%, accounting for 10.9% of revenue. Among them, the sales/tonnage price of Xiangjiao changed by +2.5%/-0.2% year-on-year respectively, and sales of the Longjiang series, a large single product with soy sauce, increased, which led to a slight increase in overall revenue. On the profit side, the gross margin of Xiangjiao 24H1 dropped slightly by 1.4 pct to 58.8%, mainly due to the increase in the high-end share of the product structure last time.

Laugh: 24H1 achieved revenue of 0.22 billion yuan, a year-on-year increase of 1.6%, accounting for 5.4% of revenue. Among them, sales volume/tonnage price changed by -11.9%/+15.2%, respectively. The company reduced low-priced products and improved the product structure, which led to a 3.2 pct increase in gross margin to 45.7%.

Internal optimization, improved human efficiency, and continued improvement in profitability

On the cost side, 24H1 company's sales/management expenses ratio was 21.8%/6.7%, respectively, -1.1/-0.02pct year-on-year, respectively, and the cost control was good. The company carried out large-scale recruitment expansion in '22. As the sales staff became more mature, human efficiency was improved, and internal optimization and marketing efficiency were improved, which led to a decrease in sales expenses. On the profit side, the company's 24H1 gross margin/adjusted net interest rate (after deducting the impact of listing fees, equity incentives, etc.) was 58.8%/24.6%, respectively, up 0.9/1.8 pct from the previous year.

Profit forecasting and investment advice

According to our updated profit forecast based on the company's 24-year semi-annual report, we expect Zhenjiu Lidu's net profit for 2024-2026 to be 1.756/2.166/2.551 billion yuan (previous value was 2.091/2.571/3.182 billion yuan), with year-on-year changes of -25%/23%/18%, respectively. As the company's products continue to be upgraded and the nationalization process of rare wine deepens, the company's growth point will be strong in the future, maintaining the company's “buy” rating.

Risk warning

There are risks that economic recovery falls short of expectations, nationalization of rare wine falls short of expectations, and brand strength improvement falls short of expectations.