The profit growth rate declined sharply, and operating pressure was released, pending subsequent improvements to 24H1 revenue/net profit of 0.99/0.12 billion yuan, or -35.5%/-71.3% YoY; 24Q2 revenue/net profit to mother 0.5/0.05 billion yuan, -13.3%/-60.9% YoY. The company's 24Q2 revenue decline narrowed significantly compared to 24Q1 (24Q1 revenue fell 48.8% year-on-year). The main reason was that terminal construction results began to transform into customer repayment effects, and the positive cycle results of BC linkage gradually became apparent. On the product side, Naisan emphasizes brand value, strictly controls release volume and stabilizes price markets, contributing limited to overall revenue. Low-end products such as Xiangquan contribute the main revenue; on the market side, the market side is a market within Shenzhen and is building a model market outside the province. By the end of June '24, the company had launched 11 model markets to carry out core terminal construction by building model markets, optimize consumer activities, and achieve regional scale growth. EPS is expected to be 0.91/1.00/1.09 yuan for 24-26, with reference to the 24-year average PE 40x (Wind's unanimous expectation), considering the full release of pressure on the company's 24-year performance. It is a target that still has a nationalization logic. The target price is 42x PE for 24 years, with a target price of 38.23 yuan to maintain “purchase.”

The price market is stable. Alcoholic Xiangquan terminal sales, and channel health is the main product. 24H1 Naisan/ Alcohol/ Xiangquan achieved revenue of 0.17/0.59/0.05 billion yuan, -60.8%/-30.1%/+36.3%, of which sales volume was -44.4%/-29.3%/+36.2%, tonnage price -29.5%/-1.1%/+0.1%. The revenue contribution of the Naisen series is small. Demand for products above the high-end has yet to be recovered, while adhering to the strategy of price control and price stability; low- and middle-end products such as Alcoholic Hongtan and Xiangquan continue to have positive momentum, mainly due to the increase in the number of banquets and bottle-opening consumption sales data, and a steady rise in channel confidence. By channel, 24H1 online/offline channel revenue was 0.11/0.88 billion yuan, +1.8%/-38.5%; by the end of 24H1, the number of company dealers was 1301, a decrease of 473 from the end of 23. Among them, the number of North China/East China/South China/Central China/other regions was -75/-76/-28/-210/-210/-84 at the end of 23, and the channel was operated in a refined manner.

The product structure is declining, cost investment is rigid, and profitability is under pressure

24H1 gross margin -6.8 pct to 73.3% (24Q2 gross margin -2.2 pct to 75.6%), mainly due to a decline in product structure; on the cost side, 24H1 sales expense rate/management fee ratio +7.3/+3.1 pct to 34.7%/7.9% year over year, 24Q2 sales expense rate/ management fee ratio +5.7/+1.0pct year on year to 35.5%/7.8%, mainly due to pre-sales expenses, high cost investment; profit side, 24H1/24Q2 net Interest rates were -15.2/-11.6pct yoy to 12.2%/9.5%. The company's contract debt at the end of 24Q2 was 0.26 billion yuan (-1.9/+0.02 billion yuan, respectively), 24H1's net cash flow from operating activities was -0.21 billion yuan, and cash repayments were 0.84 billion yuan (-38% year over year).

Looking forward to continued improvements and maintaining the “buy” rating

Considering that demand for terminals is currently weak, and it is still in the marketing model transformation stage. Short-term operating pressure will take time to absorb inventory and affect revenue growth, we lowered our profit expectations. We expect the 24-26 EPS to be 0.91/1.00/1.09 yuan (previous 1.08/1.25/1.43 yuan), and the target price is 38.23 yuan (previous value: 41.07 yuan), “buy”.

Risk warning: industry competition intensifies, macroeconomic performance falls short of expectations, food safety issues.