Pearl River Brewery disclosed its 2024 three-quarter report. 1-3Q24 achieved revenue of 4.89 billion yuan, +7.4% year over year, and realized net profit of 0.81 billion yuan, or +25.3% year over year; of these, 3Q24 achieved revenue of 1.9 billion yuan in a single quarter, or +6.9% year over year. Achieved net profit of 0.31 billion yuan to mother, +10.6% YoY. The company's 3Q24 sales performance was impressive. The increase in tonnage prices has slowed down, expenditure investment has increased, cost dividends have continued to be released, and profit levels have steadily increased. We expect that under the leadership of the company's upgraded products, the trend of sharp rise in volume and price is expected to continue. EPS in 24-26 was 0.36, 0.42, and 0.48 yuan/share, +27.4%/+14.8% compared with the same period last year. Maintain an increase in holdings rating.

Key points to support ratings

The 3Q24 sales growth rate was impressive, and the increase in tonnage prices slowed down. 1-3Q24's revenue was 4.89 billion yuan, +7.4% year over year, and beer sales/ton price was +2.7%/+4.5% year over year to 1.182 million tons/4135 yuan, respectively, with premium beer sales +14.8% year on year. On a quarterly basis, 3Q24 had revenue of 1.9 billion yuan, +6.9% year over year, and sales volume/ton price +4.7%/+2.1% year over year to 0.483 million tons/3933 yuan, respectively. 3Q24's sales performance was impressive, and the growth rate was significantly superior to the industry average (3Q24 national beer production -5.3% year-on-year ratio). We judge that this is due to increased channel recognition and continued sales of high-end upgraded single products such as 97 Chunsheng in Guangdong Province. 1-3Q24's sales volume of premium products was +14.8% YoY, continuing to grow rapidly (1H24 +14.3% YoY). The 3Q24 company's tonnage price maintained an upward trend, but the increase slowed month-on-month (1H24 tonnage price +6.2%), or was due to the company's increased trade-off efforts.

Cost dividends continued to be released, 3Q24 fee investment increased, and profit levels steadily increased. Benefiting from the reduction in the cost of raw materials such as barley and the scale effect brought about by product volume, the company's 1-3Q24/3Q24 ton cost was -2.7%/-5.5%, respectively. Together with the product structure upgrade, the company's 1-3Q24/3Q24 gross margin was +3.8/+4.0pct year-on-year to 49.3%/49.8%. The company's 3Q24 sales/management/finance/R&D expense ratios were +2.1/+0.5/+0.6/+0.9 pct, respectively, and the company's sales expenditure increased during the peak season. Overall, the company's profit level continued to rise, and the net profit margin for 1-3Q24/3Q24 was +2.4/0.5pct year-on-year to 16.5%/16.1%, respectively.

Led by upgraded products, the sharp rise in volume and price is expected to continue. Driven by marketing reforms, the company continues to deepen the “3+N” brand strategy, expand the product matrix, promote product structure upgrades, and accelerate penetration into catering and innovation channels. We expect that under the high consumption power of the South China market, the company's beer business is expected to continue to rise in volume and price as the channel's approval of upgraded products such as pure life gradually increases.

valuations

We maintain our previous profit forecast. We expect the company's EPS for 2024-2026 to be 0.36, 0.42, and 0.48 yuan, +27.4%, +14.8% compared to the same period. The corresponding PE valuation is 25.6/22.0/19.2 times, maintaining an increase rating.

The main risks faced by ratings

Product structure upgrades are slowing down, raw material price fluctuations, food safety incidents.