Incident: The company released its 2024 three-quarter report. In 2024Q1-Q3, the company achieved total operating income of 2.328 billion yuan, +15.31% year over year; realized net profit due to mother 0.333 billion yuan, +22.17% year over year; realized net profit without deduction of 0.337 billion yuan, or +23.05% year over year. Looking at a single quarter, the company achieved total operating income of 0.574 billion yuan, +15.77% year over year; realized net profit attributable to mother 0.038 billion yuan, +108.84% year over year; realized net profit deducted from non-mother 0.035 billion yuan, +71.85% year over year.

The product structure continues to be optimized, and the proportion of products over 100 yuan has increased significantly, and there has been steady growth within and outside the province. 1) By product structure, the revenue of products above 300 yuan (Golden Emblem Year, Jinhui Old Cellar Series, etc.) /100-30 yuan (Soft Gold Emblem Series, Positive Energy Series, Century Gold Emblem Five-Star, etc.) /100 yuan or less (Century Gold Emblem 2, 3, 4 Star, Gold Emblem, etc.) was 0.16/0.309/0.077 billion yuan, respectively, up 42.1%/14.9%/-24.3% year-on-year. The total revenue ratio of 100 yuan or more increased by 6.9pcts to 85.9% year-on-year. 2) By region, the total revenue of a single 24Q3 company in and outside the province was 0.375/0.171 billion yuan respectively, up 4.4%/37.9% year-on-year. 3) By sales channel, single 24Q3 company's dealer/direct sales (including group purchases) /internet sales achieved sales of 0.511/0.02/0.014 billion yuan, 10.3%/-38.4%/+204.4%, respectively. As of 24Q3, the number of dealers in and outside the province reached 276/752 respectively, a net change of -10/13 compared to 24H1. The province's intensive farming infrastructure grew steadily, and distributors and sales teams outside the province expanded and matched.

Rates improved year-on-year due to marketing transformation and accurate marketing, and quarterly profit performance for pre-donation orders was outstanding. 1) On the profit side: on the margin side, the company's 24Q1-Q3 gross profit margin was 64.14%, +0.65pcts year on year; single 24Q3 gross profit margin was 61.13%, -1.52 pcts year on year. We speculate that the company's overall structural upgrade continues, and the gross margin in a single quarter was greatly affected by promotion and discounts on high-end products. On the cost side, the cost rate for a single 24Q3 period was 39.49%, -4.17pct, sales/management/ development/ finance rates were 24.08%/13.1%/2.89%/-0.57%, respectively, and the year-on-year change was -3.2/-1.8/0.5/0.4 pcts, respectively. We estimate that the company will continue to promote marketing transformation, optimize marketing strategies, fine control of expenses, and reduce holiday promotions. Under the year-on-year reduction in sales expenses, the reduction in overall cost efficiency is driven by year-on-year streamlining of sales expenses. In summary, 24Q3 achieved net profit to mother of 0.038 billion yuan, or +108.84% year-on-year, achieving a net profit margin of 6.63%, and +2.95pcts year over year. We believe that under the premise of a small absolute base of 23Q3 profit plus 24H1 external donation expenses, the Q3 net profit growth rate in the single quarter was impressive. 2) Revenue side: As of 24Q3, the company's contract debt was 0.476 billion yuan/year-on-year increase of 10.3% /month-on-month decrease of 1.4%; sales revenue was 0.61 billion yuan, +12.73% year-on-year.

Market operation is solid, channels are developing healthily, attention is being paid to continuous optimization of the product system, and the nationwide layout is progressing steadily. As the leading province of Longjiu, the company adheres to the strategic path of “laying out the whole country, deepening the northwest, and making key breakthroughs”. Q2 completed price increases for many single products such as four-star and soft, rationalized the off-season channel price system and inventory digestion, and steady market operation in the province. Priority is given to the scale of the expansion period outside the province. Proactive investment and promotion. The results of cost efficiency improvements driven by marketing transformation are gradually showing. It is optimistic that performance potential will gradually be unleashed under the steady and intensive cultivation of the provincial market, product system upgrades, and the promotion of a nationalized layout outside the province.

Profit forecast and investment advice: We expect the company to achieve operating income of 2.976/3.512 billion yuan in 24-25, an increase of 16.8%/18.0% year on year, and expect net profit to mother of 3.92/0.48 billion yuan in 24-25, an increase of 19.2%/22.6% year on year, maintaining the “recommended” rating.

Risk warning: macroeconomic downside risk; industry competition exacerbates risk; risk of consumer consumption falling short of expectations, etc.