Wuliangye announced its 2024/3 quarterly results. 1-3Q24's revenue was 67.92 billion yuan, +8.6% YoY; net profit to mother was 24.93 billion yuan, +9.2% YoY. 3Q24's revenue and net profit to mother were 17.27 billion yuan and 5.87 billion yuan respectively, +1.4% and +1.3% year-on-year respectively. By the end of the third quarter, the company's contract debt was 7.07 billion yuan, -1.09 billion yuan month-on-month, and +0.3 billion yuan month-on-month over the same period last year. The company announced its 2024-2026 shareholder return plan to boost confidence. The external consumption environment is under pressure in the short term, and the company actively adjusts its business pace. We are optimistic about the medium- to long-term development of leading brands and maintain purchase ratings.

Key points to support ratings

The company adjusted its operating pace, and the third quarter results decelerated month-on-month. 3Q24's revenue was 17.27 billion yuan, +1.4% YoY, and revenue decelerated month-on-month (1H24 revenue +11.3% YoY). We judge that it is mainly due to the contraction of high-end restaurants and commercial consumption scenarios since the beginning of the year. High-end wine has been blocked in this year's Mid-Autumn Festival gift scene, and sales are under pressure. Furthermore, according to the company's payment policy, most dealers have already repaid 80% of the annual tasks. Therefore, in the 3rd quarter, the company took the initiative to control the pace of delivery based on market sales and product price performance, which led to a significant decline in revenue. According to the Securities Times, at the Wuliangye shareholders' meeting on June 28, company leaders stated that the planned volume of the Eighth Generation Wuliangye launch of this year's core product will not blindly seek an increase; the new sales volume will be mainly for products such as 1618 and 39 degrees. Since this year, the company has continued to increase the 1618 and 39 degree Wuliangye bottle opening code scanning and banquet events. Thanks to policy impetus, we judge that the 1618 and 39 degrees Wuliangye growth rate in the 3rd quarter was faster than that of Pu Wu.

3Q24 gross margin increased 2.8 pct year over year. Affected by the maturing collection of bank acceptance notes, cash flow achieved a significant year-on-year increase. (1) As of the end of the third quarter, the company's contract debt was 7.07 billion yuan, -1.09 billion yuan month-on-month, and +0.3 billion yuan month-on-month over the same period last year. The net cash flow from 3Q24's operating activities was 16.37 billion yuan, +48.0% over the same period. The sharp increase in cash flow was mainly related to the maturing receipt of the company's Spring Festival in '24 and bank acceptance notes collected. (2) The gross margin of the 3Q24 company was 76.2%, an increase of 2.8 pct over the previous year. We judge that it is related to the implementation of new price payments by dealers in the 3rd quarter. Furthermore, Wuliang Nongxiang Company continues to focus on high-priced products, and the product structure continues to be optimized. In terms of cost ratio, the 3Q24 company's expense ratio was 14.4%, up 2.3 pct year on year. Among them, sales expenses increased 2.8 pct to 14.0% year on year. Against the backdrop of increased competition in the industry, the company increased cost investment to promote terminal sales. The financial cost ratio was -0.9 pct year on year, and the management cost rate and R&D expense ratio were basically the same as year on year. The 3Q24 corporate tax and surcharge ratio was 14.8%, the same as the previous year. Overall, the company's net profit margin was 34.0%, the same as the previous year.

valuations

Recently, the company announced the shareholder return plan. In 2024-2026, the company's total annual cash dividend accounts for no less than 70% of the net profit of the year, and not less than 20 billion yuan (tax included). The dividend rate is significantly higher than previous years, and the shareholder return plan enhances investor confidence. Considering that the liquor industry is currently still in a period of deep adjustment, we lowered our previous profit forecast. We expect the company's revenue to increase by 8.1%, 5.7%, and 8.0% year on year, respectively, and net profit to mother of 8.0%, 5.6%, and 8.3% year on year, EPS is 8.40, 8.87, and 9.61 yuan/share, respectively, and the corresponding PE is 17.5X, 16.5X, and 15.3X respectively, maintaining the purchase rating.

The main risks faced by ratings

Affected by the economic environment, the demand side is under pressure. Channel inventory exceeded expectations. Prices in Maotai fluctuate.