The 24Q1-3/Q3 company achieved total operating income of 1.654 billion yuan (+0.64%)/0.324 billion yuan (-23.32%); net profit attributable to mother 0.241 billion yuan (+5.27%)/0.043 billion yuan (-17.75%); net profit not attributable to mother 0.238 billion yuan (+5.99%) /0.044 billion yuan (-13.23%).

We believe that the company is currently still in a period of strategic reform. In an environment where the industry is bucking the trend, the time and difficulty required for reform is also increasing. The weak domestic consumption situation in the third quarter was transmitted to the reporting side. Although there were improvements in overseas channel reforms, the share was relatively low, and overall revenue and profit declined. Wait for the results of the company's later product channel reforms to show results, leading to a recovery in performance.

Consumption was weak in the third quarter and domestic revenue declined. Overseas countries maintained expansion but their share was relatively low, and revenue and profit were lower than expected 1) Revenue side: product structure improved, and overseas expansion continued

The company's 24Q1-3 revenue was 1.654 billion +0.64%, of which Q3 revenue was 0.324 billion, a year-on-year decrease of 23.32%. The country achieved revenue of 1.227/0.228 billion yuan (-5.54%/-33.41%) in 24Q1-3/24Q3. The decline in the third quarter was mainly due to weak domestic consumption, which dragged down revenue+the number of dealers. Overseas revenue of 0.408/0.093 billion yuan (+33.48%/+32.42%) was achieved in 24Q1-3/24Q3, and the share of overseas revenue increased 11.95% to 28.97% in 24Q3. Overseas core product upgrades increased channel profits, contributing the main increase in the first three quarters.

2) Profit side: The company's product structure continues to improve, and increased cost investment is dragging down profits. The 24Q1-3 gross and net margin was +3.84/+0.47pct year-on-year to 52.35%/14.76%. The addition of proprietary products led to an increase in gross margin. It is expected that subsequent product structure improvements will continue to drive profit improvement. The 24Q3 sales/management expense ratio was +4.53/+3.66pct to 13.90%/10.01%, respectively. The increase in sales expenses was mainly due to increased promotional expenses. The net sales margin of 24Q1-3 was 14.76%, up 0.47pct year on year, and the net profit margin of 24Q3 was 13.42%, up 0.20pct year on year. Contract debt at the end of 24Q3 was +0.008 billion yuan to 0.045 billion yuan year over year. 24Q3 operating cash flow was -9.02% YoY to 0.039 billion yuan, and sales revenue was -0.006 billion yuan to 0.447 billion yuan YoY.

3) The company's dealer system continued to be optimized, direct sales channels grew, and marketing reforms continued to advance: by the end of 24Q3, the number of the company's first-level dealers was 64, of which 10 were fewer than at the end of 24Q2, the number of dealers within the province was reduced by 8 to 52, and the number of overseas dealers was reduced by 2 to 12. The Sichuan Sales Company had 212 dealers at the end of Q3, an increase of 73 over Q2. 24Q3 direct sales/wholesale agents/online revenue was 0.13/0.17/0.03 billion yuan, +69%/-45%/-11%; 24Q1-3 direct/wholesale agent/online revenue was 0.32/1.23/0.09 billion yuan, +64%/-7%/+2% year-on-year, Q3 direct sales channels accounted for 39% year-on-year +21pct. The company's dealer system continued to be optimized and gradually transformed into a marketing company.

Profit forecasting and valuation

We expect the company's revenue growth rate from 2024 to 2026 to be 0.24%, 8.27%, and 6.97%; net profit growth rates to mother will be 2.94%, 19.78%, and 12.42%, respectively; EPS will be 0.74, 0.89, and 1.00 yuan respectively; PE will correspond to 22.8 times in 24, maintaining the purchase rating.

Catalysts: Liquor demand recovery exceeded expectations; banquet recovery performance exceeded expectations; batch prices continued to rise.

Risk warning: Consumption recovery falls short of expectations; demand for high-end liquor falls short of expectations.