Incident: On August 23, the company released its 2024 mid-year report. 2024H1 achieved operating income of 5.943 billion yuan/YoY +1.30%, net profit of 0.155 billion yuan/YoY +2.77%, net profit of not to mother 0.138 billion yuan/YoY -3.63%; 2024Q2 achieved operating income of 1.81 billion yuan/YoY -14.77%, and net profit to mother of 0.025 billion yuan/YoY -49.10%. Net profit after deducting non-attributable net profit of 0.01 billion yuan/year over year -77.15%.
The channel side actively promotes store upgrades, and the product side continues to deepen the layout. 1) On the store side, actively promote store upgrades. The company actively promoted the comprehensive upgrade plan of the Huazhi Liquor Store chain, pioneered a new model of “famous wine+high-end dining+entertainment ecology”, screened high-quality partners nationwide, and steadily promoted the high-end upgrade iteration of 3.0 stores. 2) On the product side, continue to deepen the layout. ① Famous wineries join forces to create personalized products. Maintain long-term stable cooperation with famous global wines such as Maotai, Wuliangye, Fenjiu, and Lafite; joined hands with Puli Winery, a subsidiary of Fuyi Group, to launch BV Puli Winery Roosevelt Reserve Cabernet Sauvignon Red Wine. ② In terms of fine wines, we insist on experiential marketing. The fine wine matrix, represented by Lotus Flower and Lai Gaohuai, continues to be rich, and sales feedback is good. The company continued to make efforts in the Lotus brand, combining traditional marketing methods with special experiential activities to hold 2,134 “Battle of Jinrui” tastings nationwide; successfully hosted the Huazhihui Golf Club Invitational Tournament and Lotus Honor Dinner.
The gross margin was under pressure due to changes in market demand, and the cost ratio was slightly optimized. 1) On the gross profit side, the gross margin of the 2024q2 company was -2.36pct to 10.5% year on year, mainly due to an increase in the share of famous wine but a decrease in gross profit level and an increase in cost investment in fine wine; 2) On the cost side, the overall cost rate during 2024Q2 was -0.42pct to 9.64%, and the sales/management/finance rates were -0.74/+0.01/+0.31pct to 6.89%/2.30%/0.45%. The decrease in sales expenses was mainly due to a reduction in promotion expenses and a reduction in the number of sales personnel; 3 ) On the profit side, 2024Q2's net profit margin was -0.94pct to 1.40% year over year.
Investment advice: The company is a leading dealer in the domestic alcohol distribution sector. The upstream cooperative relationship is stable, it has strong channels, brand and operation capabilities, and is gradually expanding its fine wine business. We are optimistic about the scarcity of high-end leaders and the growth capacity of sub-high-end racetracks under the continuous integration of the future liquor landscape, and recognize the value of diverse category layouts. In the past, the company bucked the trend and expanded under turbulence, showing operational resilience. Referring to the company's 2024H1 performance, we expect the company to achieve operating income of 10.58/11.92/13.37 billion yuan and net profit to mother of 0.247/0.302/0.393 billion yuan in 2024-2026, corresponding to the current PE price of 20.2/16.5/12.7 times, maintaining the “buy” rating.
Risk warning: The impact of e-commerce diversion far exceeds expectations; labor and rent costs have increased dramatically; industry competition has intensified markedly.