Key points of investment

Event: The company released its 2024 three-quarter report. The first three quarters achieved revenue of 24.3 billion yuan, an increase of 10.8%; net profit to mother was 11.59 billion yuan, an increase of 9.7% over the same period. Revenue for the third quarter was 7.4 billion yuan, an increase of 0.7%; net profit to mother was 3.57 billion yuan, an increase of 2.6% over the same period. The Q3 revenue deceleration was in line with expectations, mainly due to the company putting sales and inventory removal first, slowing down and maintaining quality in order to better achieve long-term healthy growth.

Q3 Reduce repayment requirements and focus on bottle-opening and sales first. The company's revenue growth rate declined in 24Q3, mainly due to the cooling of high-end demand during the Mid-Autumn Festival season, and channel delivery became more cautious. Since the middle of the year, the company has gradually reduced repayment requirements. The main requirement during the peak season is to do a good job of opening bottles and marketing, with the aim of consolidating channels and mitigating risks by controlling the delivery of goods to storage. ① Guojiao's revenue in the first three quarters is expected to fall back to medium to low compared to the same period. In the context of the five-code system strengthening the control of goods logistics, Guojiao's channel inventory level remained at the level of 2 to 3 months, and the opening rate was rising steadily. We believe that Guojiao's revenue growth rate basically fed back to the actual sales level. Among them, North China and Southwest China maintained relatively rapid growth rates, East China adjusted, and Central China was under relative pressure. ② The revenue of mid-range liquor in the first three quarters is expected to fall to about 10% + year on year. Sales feedback from specialty 60 in the southwest region and Laolute in North China is relatively positive.

Gross margin declined slightly, and cost-side optimization was strengthened. 1) Receipt side: The company's contract debt at the end of the Q3 quarter was 3 billion yuan, down 0.35 billion yuan year on year, up 0.35 billion yuan from month to month; the revenue ratio for a single quarter was 1.10, which was the main cause of the year-on-year improvement in channel bill usage. 2) Profit side: In Q3, the company's net interest rate increased by 0.8 pct to 48.1%, contributing to the main rate improvement. ① Q3 gross margin -0.5pct year-on-year to 88.1%, mainly due to the slowdown in Guojiao's growth rate, which lowered the product structure. ② Q3 The company's sales and management expenses (including R&D) decreased by 7.8% and 10.5%, respectively, and the rates were -1.1 pct and -0.6 pct, respectively. In the context of revenue pressure, the company optimized channel cost allocation and moderately reduced concomitant expenses such as tastings; management rate improvements came from falling equity incentive costs combined with employee remuneration optimization.

Products are cultivated in multiple ways, and downgrades can be handled. Following the main line of “double brands, three product lines, and large single products”, the company's multi-price products showed a trend of complementarity and mutual promotion. During the year, Guojiao's unpacking and bottling remained stable, cellar age and Lute bottle opening maintained high water levels, and initiatives such as code scanning red envelopes, 10,000, and double 124 projects continued to strengthen the consumer atmosphere. In the current context of poor consumption, the actual opening of the company's products has successfully withstood the test of pressure, and the flexible adjustment of the product structure ensures steady revenue delivery.

Profit forecasting and investment rating: The company is based on healthy and sustainable development, actively decelerates, and does not hide its potential. Based on weak consumption in 2024H2, the macro shift to the initial stage, and the industry generally decelerated to optimize inventory. We slightly adjusted our short to medium term profit forecast. We expect net profit to be 14.15, 15.76, and 18.46 billion yuan in 2024-26 (previous values were 14.2, 15.8, 18.51 billion yuan). The current market value corresponds to 2024-26 PE of 14, 13, and 11X, maintaining a “buy” rating.

Risk warning: Economic progress is uncertain, costs and expenses exceed expectations, and low-grade alcohol growth falls short of expectations.