Incident: The company released its 2024 three-quarter report. In the first three quarters, it achieved operating income of 1.06 billion yuan, an increase of 13.5% over the previous year; net profit to mother of 0.11 billion yuan, an increase of 8.9% over the previous year. Among them, 24Q3 achieved operating income of 0.33 billion yuan, an increase of 4.1% year on year; realized net profit of 0.02 billion yuan, down 12.1% year on year; net profit without deduction of 0.02 billion yuan, down 3.4% year on year.

Products are being upgraded to a higher end and younger, and the incremental market is gradually breaking through. 1. By category, high-end liquor, regular alcohol, and other alcoholic beverages achieved revenue of 0.63 billion yuan (+10.6%), 0.33 billion yuan (+8.2%), and 0.07 billion yuan (+51%) respectively in the first three quarters. The product matrix is perfect, covering the high, medium and low price ranges. The Lanting brand sets a benchmark for high-end rice wine and fosters high-end awareness of rice wine; through 1743 packaging upgrades and the introduction of sparkling rice wine once a day, it cultivates ice drinking rice wine, broadens the consumption scene of rice wine, and is closer to young consumers. 2. By channel, direct sales, group buying, and wholesale agents achieved revenue of 0.16 billion yuan (+18.9%) and 0.86 billion yuan (+10.8%) respectively. 3. Looking at the subregions, Zhejiang, Jiangsu, Shanghai, and other regions achieved revenue of 0.6 billion yuan (+6.8%), 0.1 billion yuan (+13.3%), 0.2 billion yuan (+2.3%), and 0.13 billion yuan (+77%), respectively. Improve the product atmosphere in mature markets in Zhejiang Province; markets such as Jiangsu and Anhui mainly sell goods through channels, while expanding peripheral markets.

The gross profit margin and expense ratio increased, and the net interest rate declined slightly. 1. The gross profit margin was 50.1% in the first three quarters, an increase of 6.6pp over the previous year, mainly due to the increase in the share of medium and high-end wine and the improvement of the product structure. 2. In terms of cost ratio, the sales expense ratio was 20.4%, up 6.5 pp year on year, mainly due to an increase in employee remuneration, advertising and promotion expenses; the management cost ratio was 9.2%, down 1.3 pp; the R&D cost rate was 4%, an increase of 2.5 pp; and the financial cost ratio was -1%, up 0.1 pp year on year. 3. The net interest rate was 10.6% in the first three quarters, down 0.7 pp year on year.

The controlling shareholder was replaced, and the reform gained new vitality. At the end of 2022, the company's former controlling shareholder went bankrupt and restructured, and the controlling shareholder was changed to China Jianxin Zhejiang Company, holding 31.11% of the shares. After the change of controlling shareholders, the company's business strategy was adjusted in a series of adjustments, implementing the Huijishan and Lanting dual brand and dual division strategies, improving organizational structure, incentive assessment and other mechanisms, and making every effort to promote product optimization, brand promotion, channel development, and in-depth marketing to drive the main business to achieve rapid growth.

Profit forecast: The company's net profit for 2024-2026 is expected to be 0.18 billion yuan, 0.2 billion yuan, and 0.23 billion yuan, respectively, and EPS will be 0.37 yuan, 0.43 yuan, and 0.48 yuan respectively, corresponding to dynamic PE of 29 times, 26 times, and 23 times, respectively.

Risk warning. Marketing results fall short of expectations; high-end promotion or fall short of expectations; food safety risks.