occurrences

The company announced its 2024 three-quarter report. In the first three quarters of 2024, the company achieved total revenue of 7.832 billion yuan (-5.10%), net profit of 0.168 billion yuan (-27.36%), and net profit of non-return to mother of 0.149 billion yuan (-15.24%). With 2024Q3, the company achieved total revenue of 1.889 billion yuan (-20.84%), net profit attributable to mother 0.013 billion yuan (-84.17%), and net profit not attributable to mother 0.012 billion yuan (-64.64%).

Reduced government subsidies and increased financial expenses affected Q3 net interest rate 1) Fluctuations in the wholesale price of famous wines+fluctuations in the consumption scenario of fine wine affected gross profit. In the first three quarters of 2024, the company's gross margin was 10.02%, -0.98 pct year on year, and the net profit margin was 2.14%, and -0.66 pct year on year. Sales and management expense ratios declined, to -0.89 and -0.15 pct to 5.39% and 1.55%, respectively.

In 24Q3, the company's gross margin was 8.50%, -1.93pct year on year. It was mainly affected by fluctuations in the wholesale price of famous wine and the increase in the share of low-margin famous wine revenue. The net interest rate to mother was 0.67%, -2.68pct year over year, mainly due to declining gross margin, increased financial expenses, and decreased other income.

2) Reduced government subsidies and increased financial expenses affected Q3 net interest rates. In 24Q3, the company's financial expense ratio was 0.83%, +0.55pct year on year, mainly due to increased short-term loans, and interest expenses increased; other income/revenue -2.19pct to 0.004% year over year, mainly due to a decrease in government subsidies.

3) The decrease in the use of acceptance notes affects net operating cash flow. In the first three quarters of 2024, the company's net operating cash flow was -0.393 billion yuan (0.389 billion yuan in the same period last year), mainly due to an increase in cash payments for the purchase of goods (at the end of 24Q3, the company's notes payable were 0.536 billion yuan, -70.94% year-on-year, mainly due to a decrease in payment payments using acceptance notes).

Gaining momentum and “stinging”, waiting for recovery

1) The company upgrades stores and practices internal skills, which is expected to boost single-store sales. The company continues to focus on the upgrade and iteration of Huazhi Liquor Store 3.0, promote the upgrade strategy of “Huazhi Famous Liquor Store” to “Huazhi Liquor Store”, use chain stores as carriers to create new wine experiences and enhance single-store sales.

2) Famous wineries have stable partnerships and are expected to buck the trend and increase their share. In the era of squeezed growth, the growth rate of “famous wine represented by Mao Wulu” has further increased, and Huazhi Liquor, as a “gold medal waiter at a famous winery”, has naturally benefited; at the same time, the company's strong financial strength is expected to buck the trend and increase its share in famous wineries.

3) Rich experience in alcohol operations, and fine wines are expected to increase the company's profits. The company develops customized fine wines (lotus series wine, Lai Gaohuai, etc.), carries out marketing work around “high-quality partners+boutique wines”, and widely searches for high-quality partners throughout the country. The gross margin of fine wines is higher than that of famous wines, which is expected to increase the company's profits.

Investment advice

We expect the company's net profit to be 0.181/0.229/0.286 billion yuan in 2024-2026, with a growth rate of -23.15%/26.47%/25.28%, corresponding to PE 39/31/25X (market value 7.1 billion yuan) on October 29, respectively, maintaining the “buy” rating.

Risk warning

Risk of fluctuations in consumption scenarios, risk of fluctuations in fine wine sales, risk of policy adjustments.