Faced with an unfavorable external environment, the company made efforts to adjust and relax the requirements for channel repayment progress. The assessment focused on opening the bottle and sales. There was a marked slowdown in the third quarter, but channel health recovered. 24Q3 revenue/net profit to mother +0.7%/+2.6% YoY. In the future, the company will continue to build on healthy development and actively carry out all kinds of marketing work around terminals and consumers. The current stock price corresponds to 14xPE in 24 years. In combination with the 60% dividend rate in 23, the dividend rate is still above 4%. The margin of safety is sufficient, and additional allocation is recommended.

Q3 revenue/net profit to mother was +0.7%/+2.6% year-on-year, with a significant decline from month to month. The company released its report for the first three quarters of 2024. The company achieved revenue/ net profit after deduction of 24.3/11.59/11.56 billion in the first three quarters of 24, +10.8%/+9.7%/+10.2% year-on-year. Among them, 24Q3 revenue/net profit to mother was +0.7%/+2.6%/+3.5% to 7.4/3.57 billion. Facing pressure from industry demand, the company decelerated significantly in the third quarter.

The burden on healthy development channels has been reduced, and advance payment performance is poor. The 24Q3 company's sales revenue was -19.4% to 8.11 billion, and the contract debt at the end of Q3 was 2.65 billion yuan (-10.4% YoY), up 0.31 billion month-on-month (1.03 billion yuan in the same period last year). Poor advance payment performance was related to the company's persistence in healthy development, focusing on reviewing bottlenecked sales indicators in the third quarter, and moderately relaxed dealer repayment schedule requirements. Operating cash flow for the first three quarters/24Q3 was +37.7%/+24.5% year-on-year to 12.46/4.24 billion, respectively. The better-than-performance cash flow performance was mainly due to a sharp year-on-year decrease in the company's purchase payments (-49.8% to 3.37 billion in the first three quarters).

The company reduced channel fees, adjusted the investment structure, and the increase in gross sales margin led to an increase in net interest rates. The company's 24Q3 gross margin was 0.52 pct to 88.1%, and the main tax/sales/management expenses ratio was +0.0/-1.07/-0.58 pct to 9.4%/11.8%/3.5%, respectively. In the context of revenue deceleration, the company strictly controlled channel expenses, and the cost focus was skewed towards opening the bottle. Q3 sales expenses in a single quarter were -7.8% to 0.87 billion, and sales expenses for the first three quarters were -0.68 pcts to 10.3%. The company's 24Q3 gross sales margin increased by 0.55pct to 76.4%, driving a net margin of +0.9pct to 48.2%.

Investment advice: energy for adjustment and healthy development. Faced with an unfavorable external environment, the company made efforts to adjust and relax the requirements for channel repayment progress. The assessment focused on opening the bottle and sales. There was a marked slowdown in the third quarter, but channel health recovered. In the future, the company will continue to actively carry out various marketing work around terminals and consumers, and adjust the 24-26 EPS to 9.77, 10.61, and 11.51 yuan respectively. The current stock price corresponds to 14xPE in 24 years. Combined with the 23-year 60% dividend rate, the dividend ratio is still above 4%, and the margin of safety is sufficient. It is given a target PE of 15x for 25 years, corresponding to a target price of 159 yuan. Additional adjustments are recommended to maintain the “Highly Recommended” rating.

Risk warning: declining industry demand, suppression of high-end competition, fierce competition for medium- and low-grade wines, etc.