Incident: The company released its 2024 three-quarter report. The first three quarters achieved revenue of 1.19 billion yuan, or -44.4% year over year; net profit to mother of 0.06 billion yuan, -88.2% year over year. Looking at a single quarter, 24Q3 achieved revenue of 0.2 billion yuan, or -67.2% year-on-year; net profit to mother was 0.06 billion yuan, and a loss was recorded. The company's performance fell short of market expectations.

Product sales are under pressure, and channel repayments are cautious. The year-on-year decline in the company's 24Q3 revenue widened further. On the one hand, sales performance in the double quarter market was lackluster, and dealers' willingness to repay was weakened; on the other hand, the recovery in the commercial consumption scene was weak. Consumer demand for sub-high-end products and above still needed to recover, channel cash turnover was slow, and channel initiative to leave the warehouse became stronger. In the first half of 2024, the company sold 4,418 tons of liquor, -18.8% year-on-year, including 250 tons for the Naisen series (-44.4% YoY), 2133 tons for the Alcoholic Series (-29.4% YoY), and 813 tons for the Xiangquan series (+36.2% YoY). The tonnage price of the company's liquor in the first half of 2024 was 0.224 million yuan/ton (-20.8% YoY), including 0.691 million yuan/ton (YoY -29.5%), Alcoholic Series 0.277 million/ton (-1.1% YoY), Xiangquan Series 0.06 million/ton (YoY +0.1%), and other series 0.145 million yuan/ton (YoY -7.3%). By product: 1. The Q3 revenue decline is not expected to fluctuate much. The inventory of the old version will gradually be digested during the year, while the Jiachen edition will control price stability and delivery as needed; in the context of the general decline in demand for high-end wine in Q3, sales are more difficult, and the company is not forced to repay. 2. Alcoholics expect the Q3 revenue decline to be significantly larger than in the first half of the year. In 2024, the company clearly strengthened the model market and core terminal construction. The Red Temple banquet scene in the province began to improve, but markets outside the province still needed to be adjusted and purified, and Q3 payments slowed down with the industry. 3. The main reason for the fluctuation in the growth rate of Xiangquan and other series is that domestic products were rapidly released in the early stages and inventory digestion was promoted in stages.

Expense investment is rigid, and profitability is under pressure. 1. The company's gross margin for the first three quarters of 2024 was 71.8%, -7.1pp year on year, mainly due to the decline in product structure. 2. Sales/management expense ratios were +10.1pp/4.7pp to 39.9%/9.7%, respectively. The sales expense ratio and management expense ratio increased significantly year-on-year, mainly due to the large decline in revenue scale, while some sales expenses and management expenses are expenditure rigidity, and in order to promote higher investment in marketing, the scale effect was greatly weakened due to the reduction in cost efficiency ratio. 3. The net interest rate was 4.7%, year-on-year -17.6pp. 4. Net cash from operating activities in 24Q3 was -0.2 billion yuan, -0.18 billion yuan (-687.3%), -0.259 billion yuan (-461.4%); sales revenue 0.24 billion yuan, -0.34 billion yuan (-57.9%), -0.27 billion yuan (-52.9%); contract debt 0.21 billion yuan, -0.04 billion yuan (-0.04 billion yuan) year on year (- 17.5%), -0.05 billion yuan (-19.5%) month-on-month.

Q3 Market sales performance was lackluster, and dealers' willingness to repay declined.

Actively adjust the pace and build up energy for the long term. 1. In terms of products, the company further focuses on the two major product lines, Alcoholics and Naisen. The Alcoholics series focuses on Hongtan's big single products, sorts out the product system, and shrinks non-core products. The Naisen series uses the Jiachen edition as the core gripper to optimize the Nessen value chain, improve the profit sharing operation model of the control panel, and boost channel vitality. 2. On the market side, the province is focusing on the Hunan base market, improving the basic quality of the base market, and using code scanning activities and banquet activities as a starting point to promote C-terminal sales; outside the province strengthened model market construction, and 11 model markets within and outside the province were launched in the first half of the year. 3. In terms of channels, the company is currently making great efforts to buy gifts and scan red envelopes, strengthen the construction of Internet and special channel group purchase channels, promote BC linkage, and expand the consumer base.

Profit forecast: EPS is expected to be 0.29 yuan, 0.38 yuan, and 0.47 yuan respectively in 2024-2026, corresponding PE is 176 times, 134 times, and 108 times, respectively. Currently, demand for terminals is weak, and the company is still in the marketing model transformation stage. It will take time to digest inventory and look forward to future performance flexibility.

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