Luzhou Laojiao announced the 2024 3rd quarter report. 1-3Q24 achieved revenue of 24.3 billion yuan, +10.8% year-on-year, and net profit to mother of 11.59 billion yuan, +9.7% year-on-year. Among them, 3Q24's revenue and net profit to mother were 7.4 billion yuan and 3.57 billion yuan respectively, +0.7% and +2.6% year-on-year respectively. Affected by the consumer environment, short-term performance is under pressure. The company actively regulates and maintains a buying rating with a focus on long-term development.

Key points to support ratings

3Q24 The company's revenue decelerated markedly, and the company actively regulated and maintained healthy channels. 3Q24's revenue was 7.4 billion yuan, +0.7% YoY (1H24 revenue +15.8% YoY). By the end of the third quarter, the company's contract debt was 2.65 billion yuan, +0.31 billion yuan month-on-month, and +1.03 billion yuan month-on-month compared to the same period last year. We judge that the company relaxed repayment requirements. In order to ensure the healthy operation of the channel, the company actively regulated and controlled, and the revenue side decelerated significantly year-on-year in the third quarter. Looking at specific products, considering that the commercial consumption scenario is still being repaired and the high-end gift scene during the Mid-Autumn Festival is blocked, we judge that Guojiao 1573's growth rate has slowed compared to the first half of the year. Among waist products, the 60 edition specialty has had a strong consumer atmosphere in the southwest region in the past two years, and has become the core brand with a price range of 500 yuan in the Sichuan and Chongqing market. We expect the performance to be better than that of time-honored specialty songs and cellars.

In 3Q24, the company's net profit margin increased by 0.9 pct year on year, and profitability remained steady. 3Q24's gross profit margin was 88.1%, down 0.5 pct from the previous year. We judge that this is related to slight fluctuations in product structure and an increase in the revenue share of waist products. The cost rate for the period was 14.6%, a year-on-year decrease of 1.5 pct. Among them, the sales expense ratio and management expense ratio decreased by 1.1 pct and 0.6 pct to 11.8% and 3.5%, respectively. The financial cost rate and R&D expense ratio were basically the same. In the past two years, the company has made every effort to promote digital marketing transformation. The core product line has implemented a five-code relationship to achieve accurate cost allocation, and the increase in cost efficiency ratio has driven the sales expense ratio to a year-on-year decline. The 3Q24 corporate tax and surcharge ratio was 9.4%, the same as the previous year. Affected by declining gross margin and cost ratio optimization, the 3Q24 company's net profit margin increased by 0.9 pct to 48.2% year-on-year, and profitability remained steady.

valuations

Against the backdrop of a weak industry environment, the company fully demonstrated its management talents and promoted marketing work in the second half of the year around “high market penetration, high network coverage, and high consumer opening”. We judge that in the 3rd quarter, the company took the initiative to adjust its business pace and strive for long-term development. Taking into account the pressure on commercial alcohol due to the external macroeconomic environment, we adjusted our previous forecast. In 2024-2026, we expect the company's revenue growth rates to be 8.7%, 4.0%, and 8.3%, respectively, 8.5%, 3.4%, and 7.9%, EPS will be 9.76, 10.10, and 10.89 yuan/share, respectively, and the corresponding PE will be 14.0X, 13.5X, and 12.5X, respectively, maintaining the purchase rating.

The main risks faced by ratings

Prices in Pumao and Pu5 fluctuate. Channel inventory exceeded expectations. The economic recovery fell short of expectations.