Incidents. The company released its three-quarter report for 2024:24Q1-3 achieved total operating income of 7.317 billion yuan, -16.9% year-on-year, net profit of 0.382 billion yuan, and -0.292 billion yuan in the same period of 23 years; of these, the 24Q3 single-quarter company achieved total operating income of 1.63 billion yuan, -37.2% YoY, net profit to mother -0.041 billion yuan, and -0.211 billion yuan for the same period in '23.

Real estate divestment, meat business contraction & loss reduction, company revenue continues to decline, and gross margin continues to be optimized.

1-3Q24/3Q24's revenue was 16.9%/-37.2% to 7.317/1.63 billion yuan, respectively. We believe that the main reason for the decline in revenue during the quarter was the divestment of the real estate business, the contraction of the meat industry, and the phased pressure on liquor demand (1H24's liquor/slaughter industry revenue was +3.2%/-36.6%, respectively).

The company's profitability continued to benefit from business restructuring and loss reduction. 1-3Q24/3Q24, the company's gross margin was +6.9pct/+13.5pct year-on-year, respectively.

Expenses fluctuated during the period, and the effect of reducing losses was remarkable. The company's expense ratio for the 3Q24 period was +2.5pct to 25.4%, with sales/management/R&D/finance expenses ratios +2.5pct/+3.6pct/+0.2pct/-3.7pct, respectively. Furthermore, the 3Q24 company's sales tax and surcharge rate was +4.5 pct year-on-year, which was a significant increase from the first two quarters of 24, gradually suppressing profit levels. Overall, thanks to a sharp rise in gross margin, 3Q24's net loss to mother was only 0.041 billion yuan, and the loss margin was still significantly narrower than 0.211 billion yuan in the same period in '23.

Sales revenue was better than revenue, and advance payments increased month-on-month. In terms of cash flow, 3Q24's sales revenue was 1.979 billion yuan, or -21.1% year over year, the decline was less than current quarter revenue (-37.2%); net cash flow from operating activities was 0.11 billion yuan, or -42.8% year over year, and the performance was also slightly better than the profit side. In terms of advance payments, the company's contract debt as of the end of Q3 was 0.66 billion yuan, a net increase of 0.081 billion yuan over the end of Q2.

Profit forecasting and investment advice. We expect Shunxin Agriculture's revenue in 2024-26 to be 8.957, 9.824, and 10.654 billion yuan, respectively, -15.4%, +9.7%, and +8.5%, respectively; net profit to mother is 0.331, 0.515, and 0.656 billion yuan, respectively; EPS is 0.45, 0.69, and 0.88 yuan/share, respectively. The company is a leader in the low-end liquor industry, and the liquor business is the core source of profit. We gave the company's liquor business 18-22 times PE in 24 years, corresponding to a reasonable value range of 16.65-20.35 yuan. Maintain an “better than the market” rating.

Risk warning. Competition in the industry has intensified, sales of new products fall short of expectations, risk of swine price fluctuations, and food safety issues.