Introduction to this report:

2024Q3's performance fell short of expectations, and deep adjustments continued; considering the company's competitive advantage, we believe that the company can still seize the next round of industry recovery opportunities after its performance has bottomed out.

Key points of investment:

Investment advice: Maintain the “Overweight” rating and maintain the target price of 95.66 yuan. According to the company's short-term performance, the 2024-26 profit forecast was revised down. EPS for the period is expected to be 5.21 yuan, 5.32 yuan, and 5.86 yuan (previous values were 6.83 yuan, 7.20 yuan, and 7.71 yuan, respectively); considering the consumer goods valuation repair and valuation switch in anticipation of economic recovery, the target price was maintained at 95.66 yuan, corresponding to 20X dynamic PE in 2025.

2024Q3 showed deep adjustments, and performance fell short of expectations. 2024Q3's revenue performance fell short of expectations, mainly due to declining consumption power during the period, and the company's organizational structure is still in the consolidation stage. It is speculated that the company relaxed channel repayment requirements in the third quarter, and that Haizhilan and M3+ sales performance was relatively leading during the period; the company increased expenses to drive sales during the period, which dragged down current profit, and profit performance fell short of expectations.

Profitability fluctuates significantly, and cash flow is under pressure. 2024Q3 increased its investment in sales and expenses. The gross sales margin during the period was +20.9pct year on year, crowding out profitability. The 2024Q3 net interest rate was -14.2pct year over year, and profitability fluctuated significantly. The company's sales revenue during the period turned negative year on year, and contract liabilities at the end of the period were basically flat month-on-month. The main reason was that the company relaxed the pace of repayment and delivery.

The bottom is fixed and we are waiting for the Yangjiang River to recover. Currently, the industry is entering the storage phase at an accelerated pace. We believe that the Yanghe adjustment process will achieve inventory removal, channel profit repair, and organizational structure improvement. Considering the company's large revenue scale, Yanghe's subsequent performance may bottom out or continue for a certain period of time; in the medium to long term, the company's core strengths such as wine and brand are still there, and the product structure is in line with consumer trends, and it is expected that the next cycle will seize the industry's recovery opportunities again.

Risk factors: food safety, industrial policy adjustments, etc.