Incident: The company released its 2024 three-quarter report. In Q1-Q3 of 2024, the company achieved revenue of 24.3 billion yuan, up 10.8% year on year; net profit to mother was 11.59 billion yuan, up 9.7% year on year; net profit after deducting non-return to mother was 11.56 billion yuan, up 10.2% year on year. Among them, 3Q24's revenue was 7.4 billion yuan, up 0.7% year on year; net profit to mother was 3.57 billion yuan, up 2.6% year on year; net profit after deducting non-return to mother was 3.57 billion yuan, up 3.5% year on year.

Expense ratios continued to be optimized, and gross margin declined slightly. 24Q1-Q3 gross profit margin 88.43%, -0.01pct year; net profit margin to mother 47.7%, -0.45pct year; 24Q3 gross profit margin 88.12%, year-on-year -0.52 pct; net profit margin to mother 48.19%, +0.9pct year over year. The 24Q1-Q3 company's sales/management/R&D/finance expense rates were 10.54%/4.43%/0.54%/-0.12%, with year-on-year changes of -0.07/+0.61/+0.36/ -0.11pct; 24Q3 sales/management/R&D/finance expenses rates were 11.76%/3.54%/0.91%/-1.59%, respectively, and -1.07/-0.58/+0.09pct, respectively. At the end of the 24Q3 quarter, the company's contract debt was 2.65 billion yuan, a year-on-year decrease of 0.31 billion yuan, and a month-on-month increase of 0.31 billion yuan. We expect a decline in gross margin due to a high growth rate for waist products, compounded by weak demand in the industry.

Firmly implement marketing strategies, implement drilling plans on channels, optimize channel profit distribution, increase the number of terminals, and steadily advance marketing work around “high market penetration, high network coverage, and high consumer opening”. The digital direction implements a five-code system, and relies on channel digitalization to improve operational capabilities.

Profit forecast and investment advice: Facing declining demand in the liquor industry, the company adopts a prudent market strategy, emphasizes adherence to healthy growth goals, and will not pressure dealers, terminals, and consumers for short-term targets. Continue to promote the five-code integration, drive the management system revolution with digitalization, and continue to enhance competitiveness. We expect to achieve revenue of 35.542/42.654/50.968 billion yuan in 24-26, net profit of 15.627/18.845/22.905 billion yuan, corresponding PE of 12.89/10.67/8.78x, respectively, giving a highly recommended rating.

Risk warning: risk of macroeconomic growth falling short of expectations; risk of increased industry competition; risk of food safety.