Kouzijiao announced the 2024 semi-annual report results. 1H24 achieved revenue of 3.17 billion yuan, up 8.7% year on year, and net profit to mother of 0.95 billion yuan, up 11.9% year on year. Among them, revenue for the second quarter and net profit to mother were 1.4 billion yuan and 0.36 billion yuan respectively, up 5.9% and 15.1% year on year. By the end of the second quarter, the company's contract debt was 0.32 billion yuan, a decrease of 0.06 billion yuan from the first quarter, and an increase of 0.28 billion yuan over the same period last year. Under the high base, the company's revenue growth rate slowed month-on-month, and the launch of new products and 8 contributed to an increase. Overall performance was steady, and the purchase rating was maintained.

Key points to support ratings

The second quarter was affected by the high base for the same period last year, and revenue growth slowed month-on-month. The provincial market performance was steady, and the launch of 8 new products contributed to an increase. 1H24 achieved revenue of 3.17 billion yuan, up 8.7% year on year. Among them, 1Q24 and 2Q24 revenue growth rates were 11.1% and 5.9% respectively. The second quarter was affected by the high base for the same period last year, and the revenue growth rate slowed month-on-month. (1) Looking at specific products, 1H24 premium liquor revenue was 2.97 billion yuan, up 7.3% year on year, accounting for 96.6% of revenue. The total revenue for mid-range and low-grade liquor was 0.11 billion yuan, with year-on-year growth rates of -7.1% and +50.9% respectively. We judge that the vintage series is currently in the natural marketing stage due to its long launch time and transparent channel profits. Also in the series, Kan10, 20, and 30 were launched in the first half of last year, and sales were completed through the channel. Considering that the sub-high-end price band is affected by weak business demand as a whole, the revenue growth rate is expected to slow down since this year. The new product Jian8 was launched in the 2nd quarter of this year and is positioned in the 200-300 yuan price range. It is in the core consumer price band for banquet alcohol in Anhui Province. Currently, the market feedback from the Jian8 market is good. We judge that it brought an increase in the company's sales in the 2nd quarter. (2) Looking at the subregions, 1H24 provincial and non-provincial markets had revenue of 2.6 billion yuan (+8.8%) and 0.48 billion yuan (+3.1%) respectively, of which the provincial market revenue accounted for 84.6%, +0.7 pct. In 2Q24, the revenue growth rates of the provincial and non-provincial markets were +5.0% and -2.4% respectively. The basic market in the province was solid, and the overall performance was relatively steady. By the end of the second quarter, the company had a total of 997 dealers, including 499 in the province and 498 outside the province, with a net increase of 43 dealers outside the province compared to the end of 2023.

Cash flow in the second quarter was under short-term pressure, benefiting from product structure optimization, and gross margin increased 4.5 pct to 75.0% year over year.

(1) Benefiting from product structure optimization, the company's gross margin in the second quarter was 75.0%, an increase of 4.5 pct over the previous year. The corporate tax and surcharge ratio decreased by 2.5 pct to 15.5% year-on-year. 2Q24's sales expense ratio was 18.8%, up 3.9 pct year on year. In the 2nd quarter, 8 new products were launched, and the company increased advertising expenses and promotion fees. 1H24's advertising expenses and channel promotion expenses increased by 15.5% and 28.5%, respectively, over the same period last year. The company's management expenses rate in the second quarter was 7.2%, up 0.3 pct from the previous year, and remained stable. Affected by the increase in gross margin and the reduction in tax rates, the company's net interest rate was 25.7%, an increase of 2.1 pct over the previous year. (2) By the end of the second quarter, the company's contract debt was 0.32 billion yuan, down 0.06 billion yuan from the first quarter, and increased 0.28 billion yuan over the same period last year. The net cash flow from 2Q24's operating activities was 0.11 billion yuan, down 58.6% year on year. The company's sales revenue in the second quarter was 1.39 billion yuan, down 4.4% year on year. Affected by the external environment and inventory digestion, the company's overall repayment rate slowed down, and cash flow was under pressure in the short term.

valuations

The company's equity incentives have been implemented, and the assessment goals are in line with the company's operating rhythm, which can effectively stimulate sales momentum. In May 2024, the company announced that the 2024 revenue growth rate was 18% year-on-year, faster than the previously set equity incentive target, demonstrating management confidence. The company reshaped the channel structure through the new product and fragrance series, adopted a flat model, operated by the manufacturer, and developed group buying dealers to fully mobilize channel enthusiasm. Considering that the current industry is still in an adjustment period and consumer demand is greatly affected by the macro environment, we adjusted our previous profit forecast. We expect EPS to be 3.21, 3.54, and 3.90 yuan/share for 24-26, respectively, up 11.8%, 10.4%, and 10.1% year-on-year, respectively. Corresponding to 24-26 PE was 11.0X, 9.9X, and 9.0X, respectively, maintaining the purchase rating.

The main risks faced by ratings

Competition within the province intensified, and sales of new products fell short of expectations. The macroeconomic downturn affects terminal demand.