Incident: The company released its 2024 three-quarter report. The first three quarters achieved revenue of 0.99 billion yuan, +4.9% YoY; net profit to mother was 0.06 billion yuan, or -45.8% YoY. Looking at a single quarter, Q3 achieved revenue of 0.23 billion yuan, or -18.8% year-on-year; net profit to mother of -0.022 billion yuan. Results were under pressure due to the high base for the same period last year.

The product structure continues to be optimized, and expansion within and outside the province is consolidated. 1. Product aspect: Focus on resources to cultivate Tianzhide, National Virtue, Human Morality, Export-oriented and Star Series products, and actively lay out the core products of Human Virtue to seize the price of 150-200 yuan. Qinghai has fully introduced Guozhidechen products, and the pace of product structure upgrading is obvious. 2. Regional aspects: The national market layout is more clear, consolidating the Qinghai base, with Gansu, Shanxi, Shaanxi and Henan as the strategic core, complemented by key cities in East China, South China, and North China to launch overseas plans to develop the US market, laying a solid foundation for long-term development. 3. Channel aspect: Actively promote channel transformation within the province and continue to enhance channel impetus; outside the province, focus on deploying high-quality group buyers and channel dealers, and actively invest in market development outside the province.

Growth has slowed under a high base, and increased market investment and restrictive stock fees have lowered profits. 1. The company's gross margin for the first three quarters of 2024 was 59.4%, 4.4pp year on year, mainly due to a slowdown in revenue growth, increased market cost investment based on marketing transformation, and the impact of restricted stock expenses. 2. Sales/management/finance expense ratios were +0.9pp/1.0pp/1.0pp to 23.3%/13.2%/-0.2%, respectively. The increase in financial expenses was mainly affected by the US dollar exchange rate, and exchange earnings decreased. 3. The company's net profit margin decreased by 5.1 pp to 5.8% due to a decrease in gross margin and an increase in the period expense ratio. 4. The contract debt at the end of the period was 0.078 billion yuan, a year-on-year decrease of 0.014 billion yuan, and basically the same from month to month.

Marketing transformation continues to deepen, and it can be expected to work hard for the better. The company focuses on upgrading the product structure, continuously promoting marketing transformation, and comprehensively promoting the integration of wine tourism. The pace of in-depth adjustments is remarkable. 1. The company focuses on a series of export-oriented products, promotes the formation of a healthy ecosystem for high-end products such as the third-generation Gold Standard and Guozhide, and further optimizes the product structure. 2. Five core tasks have been carried out to seize terminal shelves, upgrade plans for weak areas of single products, restore market order, improve basic marketing work, and consolidate customer relationships. Sales of products in the 100-200 yuan/500ml price range have increased markedly. Human virtue products carried out large-scale display work, and there was a marked increase in single product sales. Fukujiu, Yongqing, and series products have achieved remarkable results in strengthening weak areas. The full regional coverage of the base market has been further improved. 3. The company strengthens the integration of wine tourism around the cultivation of tourist groups, community operation for tourism workers, and joint promotion of tourist attractions. On the basis of “Famous Wine Entered Famous Enterprises” and “Thousands of Entrepreneurs Invited”, C-side activities such as “Qinghai-Tibet Self-driving Tour” and “Cruise Tour” were created to continuously enhance customer stickiness.

Profit forecast. The estimated net profit for 2024-2026 is 0.06, 0.1, and 0.14 billion yuan, respectively, and EPS is 0.13 yuan, 0.20 yuan, and 0.29 yuan, respectively. The company is a leader in barley wine and has a solid consumer base. Benefiting from product structure upgrades and market development outside the province, the results of in-depth adjustments are expected to be shown.

Risk warning: There is a risk of a sharp economic downturn, and the recovery in consumption falls short of the expected risk.