3Q24 results are in line with our expectations

The company announced results for the third quarter: the company's revenue for the first three quarters was 0.591 billion yuan, net profit attributable to mother was 0.08 billion yuan, and net profit not to mother was 0.075 billion yuan. Single 3Q24 revenue/sales/ASP/ton cost -0.4/-1.2/+1.7/ -3.3% year over year; net profit attributable to mother +15.4/ +15.6% year-on-year, respectively; gross margin/sales expenses rate/management expense ratio/net profit margin attributable to mother/net profit margin/net profit margin without return to mother +2.7/+0.5/+2.7/+2.7ppt This performance is in line with our expectations.

Development trends

The growth performance of the middle and high-end is better than the overall performance, and the performance within the province is better than that of outside the province. Volume: 3Q24's beer sales volume was -1.2%, mainly affected by the weakening overall consumption environment; Price: 3Q24's beer tonnage price was +1.7% YoY, mainly due to structural improvements. 3Q24's revenue for middle- and high-end products was +1.6%/-2.5%, respectively. Since 2024, the company's construction strategy has achieved certain results based on the deepening construction work of the landlord market. 3Q24's revenue in and outside Fujian province was +0.3/ -0.5% year-on-year, respectively.

Declining costs, reduced costs and increased efficiency led to improved profitability. The 3Q24 company's net profit margin/net profit margin after deduction increased by 2.7/2.7ppt to 19.8%/19.7% year-on-year, mainly due to a year-on-year decrease in gross margin of 2.7ppt to 35.9%. The 3Q24 company's beer tonnage price plus a tonne cost of -3.3% over the same period led to an improvement in gross margin. 3Q24's sales/management/R&D expense ratio was +0.6/-0.5/-0.3ppt year-on-year, and the overall cost ratio improved year-on-year under cost reduction and efficiency.

Future outlook: We expect cost reduction and efficiency improvements and a slow structural upgrade, which is expected to support the company's profit release.

The company continues to promote digital and intelligent transformation, and carry out energy-saving facility transformation and technical research. There is still a lot of room for future cost efficiency savings. Based on the company's low profit base and large room for improvement, we expect the company's profit growth rate to exceed the industry average in the next three years.

Profit forecasting and valuation

We basically maintained net profit of 0.071 billion yuan to mother in 2024, and we introduced net profit to mother of 0.081 billion yuan for the first time in 2025. The current share price is trading at 36.3/32.0 times the P/E valuation in 2024/25. Considering that the company's profit is expected to remain faster than the industry's growth, we maintain our target of 11.3 yuan/share, corresponding to 39.7/35.0 times P/E in 2024/25. There is 9.3% room to rise compared to the current stock price, and maintain an outperforming industry rating.

risks

Product restructuring effects fall short of expectations, fluctuating raw material prices, increased competition, food safety issues, etc.