Brief performance review

On October 30, 2024, the company disclosed its quarterly report for the year 24, achieving revenue of 1.19 billion yuan, or -44.4% year-on-year; net profit to mother of 0.06 billion yuan, or -88.2% year-on-year. Among them, 24Q3 achieved revenue of 0.2 billion yuan, or -67.2% year-on-year; net profit to mother was 0.06 billion yuan, which recorded a loss, lower than market expectations.

The company turned profit into a loss during the period, and the scale of revenue shrunk further. The main reasons were: 1) double sales were under pressure, channel repayment sentiment weakened, and the results of focusing on cultivation were not yet evident; 2) fixed expenses had an impact on net profit. Combined with the elimination of social inventory, the cultivation of direct sales required an increase in cost investment and a weakening of the product structure, which affected profit performance. To this end, the company stated: 1) adhering to the “price first, quantity first” management principle, optimizing the channel value chain to boost channel confidence; 2) adhering to the transformation of the BC joint marketing model, focusing on the transformation of the BC joint marketing model, focusing on the internal Sanjiachen version and the alcoholic Red Tan, sorting out the product system and shrinking non-core products.

Judging from the report structure: 1) Net interest rate for 24Q3 was -42.2 pct to -32.8% year on year, with gross margin of -11.6 pct to 64.0%, which was the highest product affected by economic shocks and the weakening of the product structure during the period. Sales expense ratio/management fee ratio/tax and additional shares were +30.2 pct/+13.6 pct/-0.2 pct, respectively. In the context of revenue pressure, relatively rigid expenses still suppressed profit margins, and contributed to the difference in sales revenue compared to the current pace. 2) The balance of contract debt at the end of 24Q3 was 0.21 billion yuan, -0.05 billion yuan month-on-month. Considering △ narrow repayment after contract debt+revenue -64% YoY; 24Q3 sales revenue was 0.24 billion yuan, -58% YoY.

Profit Forecasts, Valuations, and Ratings

Considering the continued weakening of demand in the liquor industry, which had a strong impact on large-scale small liquor companies, we lowered net profit to mother by 84%/68%/61% in 24-26, and estimated revenue of -51.0%/+10.7%/+10.0% for 24-26 years; net profit to mother was -89.3%/+154.2%/+41.6%, corresponding to net profit attributable to mother 0.06/0.15/0.21 billion yuan; EPS was 0.18/0.46/0.65, and PE valuations corresponding to the company's stock price were 285.9/ 112.5/79.4 times, downgraded to “gain” rating.

Risk warning

Macroeconomic pressure risks; marketing transformation results fall short of expectations; nationalization and expansion fall short of expectations; industry policy risks; food safety risks.