Kouzijiao 24Q3 achieved operating income of 1.195 billion yuan, or -22.04%; net profit to mother of 0.362 billion yuan, -27.72% year over year; net profit of 0.337 billion yuan without return to mother, -32.34% year over year. The third quarter results were lower than market expectations, and the province was seriously squeezed, and series cultivation remains to be seen. Q3 Gross margin declined, and profitability declined.

We lowered our 24-26 EPS forecast to 2.66, 2.45, and 2.46 yuan to an “overweight” rating.

Net revenue and profit both declined in 24Q3, and repayment performance was slightly better than revenue. Kouzijiao 24Q1-Q3 achieved operating income of 4.362 billion yuan, -1.89% year over year; net profit to mother of 1.311 billion yuan, -2.81% year over year; net profit after deducting non-return to mother of 1.266 billion yuan, -4.89% year over year. 24Q3 achieved operating income of 1.195 billion yuan, or -22.04%; net profit to mother of 0.362 billion yuan, -27.72%; net profit after deducting non-return to mother of 0.337 billion yuan, -32.34% year over year. The third quarter results were lower than market expectations, mainly due to pressure on sales of old products and a series of high-end products, which declined. 8 Market introduction accelerated expansion, but it still took time to form a repurchase. The company's Q3 cash repayment was 1.426 billion yuan, +1.78% year over year, and sales revenue was better than revenue; by the end of the quarter, contract debt was 0.355 billion yuan, an increase of 0.04 billion yuan over the previous year, a decrease of 7.5% over the previous year.

The province is seriously being squeezed, and series cultivation remains to be seen. Revenue from premium, medium, and low-grade liquor in the first three quarters of 24 was 4.11/0.05/0.09 billion yuan, respectively, with year-on-year changes of -3.1%/-27.4%/+44.5%, respectively. Revenue from high-end liquor in the third quarter of a single quarter was 1.13/0.01/0.02 billion yuan, respectively, with year-on-year changes of -22.7%/-55.3%/+26.5%, respectively. High-end liquor sales pressure was high, shifting from increase to decline year on year. Furthermore, sales of a series of high-priced products are still in the cultivation stage and sales are slow. It is expected that Jian8 will support future and series growth.

The company's revenue in the first three quarters was 3.56 billion yuan/0.7 billion yuan, compared to -1.7%/-8.1%, and revenue in the third quarter of the province was 0.95 billion yuan/0.22 billion yuan, compared to -22.1%/-25.6%. The province was severely squeezed by competitive products, and the share of the outside of the province declined passively when the cash flow of tobacco hotels was squeezed out, and the overall market outside the province was in a contraction state.

Q3 Gross margin declined, and profitability declined. The company's gross margin fell 5.9 pcts to 71.9% in Q3, mainly due to sales pressure on high-end products and increased cost support for the company. The Q3 sales expense ratio was 3.03pcts to 12.38%, the management expense ratio was +1.27pcts to 7.08%, the difference in the quarterly investment rate fluctuated, and was stable in the first three quarters as a whole. The Q3 net interest rate decreased 2.38pcts to 30.28% year-on-year, and profitability declined.

Investment advice: It remains to be seen if market competition intensifies and product cultivation is still to be seen, and the investment rating will be downgraded to “increase wealth”. Demand in the Anhui market has weakened compared to 23 years, and market competition has intensified. Kouzijiao is in the reform and transformation stage. The cultivation of new products is still taking time, and the willingness of dealers to buy goods has weakened on the basis of no repurchase. We downgraded our 24-26 EPS forecast to 2.66, 2.45, and 2.46 yuan to a “gain” rating.

Risk warning: competition within the province intensifies, series cultivation falls short of expectations, and consumer demand weakens