On August 28, 2024, Alcoholic Liquor released its 2024 semi-annual report.

Key points of investment

Revenue and cash flow performance have improved, and profits are still under pressure

The decline in revenue narrowed, and profits fell short of expectations. 2024H1's total revenue was 0.994 billion yuan (same decrease of 35.50%), net profit due to mother was 0.121 billion yuan (same decrease of 71.32%), after deducting non-net profit of 0.117 billion yuan (same decrease of 71.98%). 2024Q2's total revenue was 0.5 billion yuan (same decrease of 13.27%), net profit due to mother was 0.048 billion yuan (same decrease of 60.87%), after deducting non-net profit of 0.047 billion yuan (same decrease of 59.86%). The decline in gross margin compounded the increase in cost investment, and the decline in profitability. 2024H1 gross margin/ net margin was 73.35%/12.17%, respectively, -6.80/ -15.20pcts year on year; 2024Q2 was 75.59%/9.52%, respectively, -2.23/ -11.59pcts year on year, respectively. The decline in product structure compounded by frequent year-on-year declines in the mean price of internal parameters led to a decline in gross margin. The 2024H1 sales/management expenses ratio was 34.70%/7.89%, respectively, +7.28/+3.05 pcts; 2024Q2 was 35.45%/7.80%, respectively, +5.73/+0.96pcts, respectively. Since the cost reform, the absolute value of the company's expenses has continued to increase, and the sales expense ratio has increased year-on-year. Q2 Net operating cash flow recovered, and contract liabilities increased month-on-month. Net cash flows from operating activities in 2024H1/2024Q2 were -0.209/0.056 billion yuan, compared to 0.083/-0.083 billion yuan for the same period last year; sales payback was 0.837/0.518 billion yuan, respectively, or -38.29%/-12.94%, respectively.

As of 2024H1, the contract debt was 0.257 billion yuan (+0.022 billion yuan month-on-month).

Insider focuses on the Jiachen version. Alcoholics performed better than the previous month on Red Tan

The revenue for 2024H1 was 1.73/0.591/0.049/0.177 billion yuan, compared to -60.85%/-30.11%/+36.33%/-17.51%, accounting for 17.46%/59.74%/4.96%/17.83% of alcohol revenue, respectively. Among them, the gross margins of Naisen Series/Alcoholics Series/Other Series were 88.03%/75.78%/60.48%, respectively, -3.08/-3.46/ -8.85pcts, respectively. Since Q2, the company has accelerated the shipment of the Jiachen edition. The Alcoholics series focuses on the Hongtan big single products, while the Xiangquan series has achieved rapid growth. In terms of volume and price breakdown, the sales volume of 2024H1 is 0.03/0.0021/0.0008/0.0012 million tons, respectively, or -44.44%/-29.35%/+36.18%/-11.00%; tonnage prices were 69.14/0.2772/0.0604/0.1445 million/ton, respectively, within -29.53%/-1.08%/+0.11%/-7.31%, respectively. The decline in ginseng tonnage prices is mainly due to stronger sales policies and structural adjustments within the Naisen series of products.

Outside the province has been greatly affected, and channels within the province continue to be optimized

Looking at the subregion, 2024H1's revenue in the province/province was 0.413/0.581 billion yuan respectively, or -36.74%, respectively, accounting for 41.58%/58.42%, respectively; gross margin was 77.18%/70.62%, respectively, -5.18/-8.66pcts. In the first half of the year, the company focused on the base market in Hunan, and launched 11 model markets within and outside the province. By channel, 2024H1 online/offline channel revenue was 0.114/0.876 billion yuan, respectively, +1.79%/-38.53% year-on-year, respectively. As of 2024H1, the total number of dealers was 1301, a decrease of 473 compared to the beginning of 2024, with 210 fewer in central China, mainly due to the optimization of dealers in the province.

Profit forecasting

We are optimistic that the company will continue to push forward cost reforms, putting pressure on short-term performance in exchange for long-term growth. Domestic pricing has shown a strong high-end brand power, and the acceleration of Hongtan Marketing will reflect an increase in the influence of the next high-end. The short-term company is still in the reform and adjustment period, and the consumption environment is still weak. According to the company's semi-annual report, we adjusted the company's 2024-2026 EPS to 0.87/1.01/1.18 yuan (previous value was 1.27/1.54/1.89 yuan), respectively. The current stock price corresponds to PE 41/36/30 times, respectively, maintaining a “buy” investment rating.

Risk warning

Downward macroeconomic risks, domestic revenue growth falling short of expectations, expansion outside the province falling short of expectations, and the volume of Red Tan falling short of expectations.