The company released its report for the third quarter of 2024. In the first three quarters, it achieved operating income of 4.36 billion yuan, -1.9% YoY; realized net profit to mother of 1.31 billion yuan, or -2.8% YoY. Looking at the third quarter of a single quarter, the company achieved operating income of 1.2 billion yuan (-22.0%) and realized net profit of 0.36 billion yuan (-27.7%) to mother.

In 24Q3, middle- and high-end revenue was under pressure, and contract liabilities increased month-on-month. The revenue for the first three quarters of high/midrange/low-grade products was 4.11 billion/0.049 billion/0.091 billion, respectively, -3.1%/-27.4%/+44.5%, respectively; 24Q3 high/midrange/low-grade product revenue was 1.14 billion/0.013 billion/0.021 billion, respectively, -22.7%/-55.3%/+26.5%, respectively. By region, the province achieved revenue of 3.56 billion yuan (yoy -1.7%) in the first three quarters of 24, and revenue of 0.7 billion yuan (yoy -8.1%) outside the province. Revenue from both inside and outside the province declined, and the performance within the province was relatively stable. At the end of 24Q3, the number of the company's distributors in and outside the province was 500 and 508, an increase of 1 and 10 respectively compared to the end of 24Q2. At the end of 24Q3, the company's contract debt was 0.36 billion, down 7.4% year on year, up 12% from the end of Q2, and 24Q3 revenue+delta contract debt was 1.21 billion (yoy +3.0%).

The product structure is under downward pressure on gross profit, and profit levels have declined somewhat. 24 In the first three quarters, the company's gross margin was 74.8% (yoy-0.5pct), sales/management expense ratios were 14.3%/6.4%, respectively, +0.04pct/+0.5pct year-on-year, respectively, and the net sales margin was 30.1% (yoy-0.3pct). The cumulative performance was relatively stable.

In 24Q3, the company's gross margin was 71.9% (yoy-5.9pct); the sales/management expense ratio was 12.4%/7.1%, -3.0pct/+1.3pct, respectively; 24Q3 net sales margin was 30.3% (yoy-2.4pct).

The channel is operating well, and performance risks may have been released. Single products worth less than 200 yuan, such as 5 years, can still achieve positive growth. Products over 200 yuan and 10 or more were affected by weak consumption in the liquor industry, which led to a major decline. The company strives to maintain healthy channel operation in 24Q3 and maintain healthy inventory without overloading. Currently, the three-quarter reporting performance risk on the reporting side has been released. It is hoped that after a recovery in consumption, the revenue side of the company's products will improve at the same time as the gross profit side, and 25 years will bring about performance flexibility.

According to the 3Q24 report, revenue and gross profit margin were lowered for 24-26. We forecast the company's earnings per share for 2024-2026 to be 2.86, 3.17, and 3.54 yuan, respectively (the original forecast was 3.17, 3.53, and 3.94 yuan for 24-26). Combined with comparable companies, we believe that the current reasonable valuation level of the company is 17 times the price-earnings ratio of 2024, and the corresponding target price is 48.62 yuan, maintaining the purchase rating.

Risk warning: New product promotion falls short of expectations, competition within the province increases risks, and channel changes fall short of expectations.