Incident: The company released its quarterly report for the third quarter of 2024. 2024Q1-Q3 achieved operating income of 0.987 billion yuan, a year-on-year increase of 4.89%; realized net profit to mother of 57.4484 million yuan, a year-on-year decrease of 45.80%; and realized net profit deducted from non-mother of 54.4534 million yuan, a year-on-year decrease of 45.44%. According to calculations, 2024Q3 achieved operating income of 0.228 billion yuan, a year-on-year decrease of 18.76%; realized net profit attributable to mother was -22.1692 million yuan, compared to 9.4573 million yuan in the same period last year; realized net profit without deduction to mother was -22.0404 million yuan, compared to 0.8839 million yuan in the same period last year.

The decline continued in the third quarter, and marketing transformation continued to deepen. 24Q3's revenue fell 18.8% year on year. The decline was slightly higher than in the second quarter. It is expected to be mainly affected by adjustments in the liquor industry. The contract debt at the end of the third quarter was 0.078 billion yuan, a year-on-year decrease of 0.014 billion yuan, and remained basically the same from month to month. In order to further implement the two driving forces of “marketing and innovation” and promote the rapid development of the company's new product business, the company adjusted its organizational structure and set up a new product development department.

The gross margin has declined, and the increase in the cost ratio during the period affected the level of profit. 24Q3 gross margin fell 6.4pct year over year to 59.1%, which is expected to be related to a decrease in revenue scale. The 24Q3 sales expense ratio and management expense ratio increased by 2.6/3.6 pct, respectively, and the company's market expenditure based on marketing transformation increased. The expected increase in management expenses is mainly due to an increase in equity incentive expenses and a decrease in revenue scale. Under the combined influence, net profit for 24Q3 was -0.02 billion yuan, and profit for the same period last year was 0.009 billion yuan.

Investment advice: Based on the operating situation in the first three quarters and adjusting the profit forecast, the company's revenue for 24-26 is expected to be 12.1/13.5/1.51 billion yuan, respectively, with a year-on-year growth rate of -0.3%/12.2%/11.7%. Net profit attributable to mother is expected to be 0.05/0.08/0.12 billion yuan, with year-on-year growth rates of -49.5%/86.4%/43.9%, maintaining the “increase” rating.

Risk warning: Product structure upgrades fall short of expected risks, competition increases risks, and expansion outside the province falls short of expected risks