Incident: Pearl River Brewery released its 2024 semi-annual report. 2024H1 achieved revenue of 2.986 billion yuan, +7.69% year over year, net profit of 0.5 billion yuan to mother, +36.52% year on year, net profit of 0.476 billion yuan after deducting non-return to mother net profit of 0.476 billion yuan, or +41.72% year over year. 2024Q2 achieved revenue of 1.878 billion yuan, +8.07% YoY, net profit attributable to mother 0.379 billion yuan, +35.63% YoY, net profit not attributable to mother 0.371 billion yuan, +40.61% YoY.

Volume and price rose sharply in the second quarter, and 97 pure raw materials continued to be released, driving a 6.7% year-on-year increase in tonnage prices. Sales of the beer industry declined in the second quarter due to rainy weather and weak restaurants. According to data from the National Bureau of Statistics, the cumulative output of beer companies above the scale of China from January to June 2024 was 19.088 million tons, an increase of 0.1% over the previous year. The sales volume/tonnage price of 2024H1 was 0.6985 million tons/4116 yuan/ton respectively, +1.4%/+6.7% year-on-year. The sales growth rate was better than the industry. The increase in net sales volume of 97 led to an increase in tonnage prices exceeding expectations. By structure, 2024H1 high-end, mid-range, and popular products achieved revenue of 2.04/0.648/0.187 billion yuan respectively, or +17.19%/-13.40%/+11.95% compared with the same period last year. The share of high-end revenue reached 70.95%, an increase of 5.4 pcts over the previous year. Sales of mid-range alcohol, mainly zero, are expected to decline by double digits in the first half of the year, and sales of premium beer increased 14.3% year over year. According to channel research, the Junsheng series is expected to account for more than 55% of sales, and 97 Junsheng is expected to increase by more than 30%. 97 Chunsheng promoted growth by maintaining a high level of prize money placement and improving the digital system, while seizing part of the market share of competing products. 97 Chunsheng is a major single product in its 5th year on the market and is in a growth period. Competitors at the same price are optimistic that their potential will continue to be released under relative aging. In the subregion, the revenue of 2024H1 in South China/other regions was 2.783/0.203 billion yuan, +8.53%/-2.64% year-on-year. Growth within Guangdong Province was resilient, and the performance of the northern regions outside the province was relatively weak. By channel, 2024H1 general/supermarket/nightclub/ e-commerce achieved revenue of 27.24/0.084/0.045/0.022 billion yuan respectively, +7.80%/+36.74%/-6.73%/+13.21% year-on-year. The supermarket channel grew rapidly, and the nightclub channel was under pressure.

As of the end of 2024Q2, the number of distributors in Guangdong/other regions was 637/963, a net increase of +33/+96 compared to the beginning of the year. The company used various channels such as the Canton Fair, Sugar and Wine Fair, and China Merchants Fair to conduct nationwide investment. The Pearl River Puree Experience Store layout exceeded 400, and the pace of epitaxial marketing development continued to accelerate.

The cost reduction and efficiency were obvious, and the net interest rate in the second quarter reached a record high. On the cost side, the cost of 2024H1 tons decreased by 0.8% to 2,179 yuan/ton, mainly due to depreciation of tons and lower labor costs per ton. The gross margin of the 2024H1 company reached 49.03%, +3.6 pct year on year, and the gross margin of the 2024Q2 company reached 53.11%, +4.9pct year on year. The increase in gross margin is expected mainly due to product structure upgrades and cost optimization. The 2024Q2 tax and additional/sales/management expense ratios were 7.97%/13.06%/5.39%, respectively, -0.37/-0.28/ -0.5pct. The company's expense ratio was clearly optimized, and the cost reduction and efficiency increased significantly. The 2024H1 net interest rate/net interest rate without return to mother reached 17.10%/15.93%, +3.5/+3.8pct. The 2024Q2 net interest rate/net interest rate without return to mother reached 20.49%/19.78%, +4.0/+4.6pct year over year. The company's product structure was boosted and costs were continuously optimized, and the profit side fully released flexibility.

Investment advice: Revenue growth is expected to be 8%/8%/7% in 2024-2026, with net profit growth rates of 41%/18%/13%, EPS 0.40/0.47/0.53 yuan respectively, corresponding PE is 21x/18x/16x, respectively. The corresponding PE is 21x/18x/16x, respectively. Based on the 2024 results, the target price is 9.20 yuan, giving a “gain” rating.

Risk warning: Food safety risks, structural upgrades falling short of expectations, and increased risk of industry competition.