Incident: On October 28, the company released its 2024 three-quarter report. 2024Q1-3 achieved operating income of 7.832 billion yuan/YoY -5.10%, net profit 0.168 billion yuan/YoY -27.36%, net profit after deducting 0.149 billion yuan/YoY -15.24%; single 2024Q3 achieved operating income of 1.889 billion yuan/YoY -20.84%, net profit to mother 0.013 billion yuan/YoY- 84.17%, net profit after deducting non-return to mother was 0.012 billion yuan/-64.64% YoY.

Expand the 3.0 store layout and continue to develop fine wines. 1) Channel: High-end stores are expanding steadily.

2024Q3, the company's 3.0 stores opened in Hubei, Shaanxi, Shanxi, Guangdong and other provinces, steadily promoting the high-end upgrading and iteration of 3.0 stores. 2) Product: New products one after another, continuing to develop fine wines. On August 16, the company reached a strategic cooperation with Yangshao Liquor to launch the Yangshao Cai Pottery - Source series to promote the upgrading of famous regional wines. At the same time, the company maintains long-term stable cooperation with famous wineries around the world and continues to develop lotus wine.

Gross profit performance was under pressure, and costs were slightly optimized. 1) On the margin side, the 2024Q3 company's gross margin was -1.93pct to 8.50% year over year, or profit margins were narrowed due to pressure on the liquor price system; 2) On the cost side, the 2024Q3 company's sales/management/ financial expenses ratio was -0.96pct/+0.03pct to 5.54%/1.83%/0.83% year over year, and the overall period expense ratio was -0.38pct to 8.20% year over year; 3) On the profit side, 2024Q3 achieved 0 other revenue billion yuan/0.052 billion yuan in the same period last year. The decline in other earnings was mainly due to a decrease in the amount of government subsidies received in the current period. 2024Q3's net interest rate to mother was -2.68 pct to 0.67% year on 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 2024Q3 performance, we expect the company to achieve operating income of 9.59/10.22/11.95 billion yuan in 2024-2026, respectively, and net profit of 0.177/0.273/0.368 billion yuan, corresponding to the current PE price of 43.3/28.1/20.8 times, maintaining a “buy” rating.

Risk warning: 1) macroeconomic impact; 2) intense market competition; 3) Business development falls short of expectations.