Introduction to this report:

The performance was in line with expectations, the mid-term dividends exceeded expectations, a new stage of high-end beer was laid out, the summary performance of major liquor products was outstanding, and future plans were made up for structural shortcomings.

Key points of investment:

Investment advice: The performance is in line with expectations, and the mid-term dividend exceeds expectations. Based on considerations of the impact on the consumption environment, net profit for 2024 and 25 was lowered to 5.67 billion yuan and 6.1 billion yuan, giving a profit forecast of 6.49 billion yuan for 2026. The current stock price corresponds to PE 13X in 2024, maintaining the “increase” rating.

The performance was in line with expectations, and the mid-term dividend exceeded expectations: the company's 24H1 achieved turnover of 23.744 billion yuan, -0.53% YoY, profit before interest and tax of 6.365 billion yuan, +1.92% YoY, net profit to mother 4.705 billion yuan, +1.20% YoY, in line with overall expectations. 1H24's dividend was $0.373 per share, with a total dividend payout of 1.21 billion yuan, +30% year over year, and the payout ratio was +6pct to 26% year over year. The performance was in line with expectations, and the mid-term dividend exceeded expectations.

Beer sales or low orders declined in 2024, and profit margins reached a new high: 1H24 achieved 6.35 million kiloliters of beer sales, -3.39% year over year. The number of units in the middle high-end and above increased by more than +10% year-on-year, and sales of Heineken, Lao Xue, and Red Jue increased by more than 20% year over year.

The number of low units sold is expected to decline for the full year of 2024. According to our estimates, the average sales price of 1H24 beer increased 2.0% year-on-year to 3,554 yuan/kilolitre. The cost per ton of the 1H24 beer business rose +0.9%, while gross margin improved by +0.6pct to 45.8% year over year, and profit margin before interest and tax was +1.1 pct to 28.2% year over year, a record high. The company maintains confidence in profit growth throughout the year.

Liquor's summary performance was outstanding, and future plans are to make up for structural shortcomings: 24H1 liquor business achieved turnover of 1.178 billion yuan, +20.6% year over year, profit before interest and tax of 48 million yuan, -32.39% year over year, and gross margin +2.1 pct to 67.6% year over year. Abstract Sales increased by more than 50% year on year, accounting for about 70% of liquor business revenue. According to the exchange, the next step of the company is planning to supplement Jinsha products, improve key soy wine markets such as Guizhou and Henan, develop banquet channels, and expand non-banquet channels.

Risk warning: Consumption habits have changed, and competition across categories has intensified.