Incident: The company released its 2024 three-quarter report. The 2024Q1-Q3 achieved operating income of 28.959 billion yuan (-6.52% year over year, same full text) and net profit of 4.99 billion yuan (+1.67%); of these, 2024Q3 revenue was 8.891 billion yuan (-5.28%) and net profit to mother was 1.348 billion yuan (-9.03%). The performance was slightly lower than expected.

Demand for terminals is weak, and both volume and price are under pressure. 1) Sales volume: In 2024Q1-Q3, the company's total sales volume was 6.785 million kiloliters (-6.98%), of which sales volume in Q3 was 2.155 million kiloliters (-5.11%). Sales of high-end and low-end products are expected to be under pressure due to weak terminal consumption.

2) Structure: The main brand of Tsingtao Brewery sold 1.225 million kiloliters (-4.15%) in 2024Q3, 0.883 million kiloliters (-4.75%), and other brands sold 0.93 million kiloliters (-6.34%). Among them, sales of other brands declined more than average. On the one hand, low-income people are more sensitive to the economy, and on the other hand, the company actively promoted the upgrading of low-end products to Laoshan and Classic. 3) Tonnage price: The average price for 2024Q1-Q3 was 4268.09 yuan/kilolitre (+0.50%), of which the average price for Q3 was 4125.75 yuan/kilolitre (-0.17%). Structural upgrades have slowed down, mainly due to weak drinking channels and pressure on high-end beer sales.

Sales expenses increased in Q3, and profits turned negative year over year. The gross profit margin for 2024Q3 was 42.12% (+1.19pct), mainly benefiting from lower prices of raw barley and packaging materials, and the tonnage cost decreased by 2.20% year on year. The 2024Q3 sales and management rates were 14.08% (+2.41pct) and 3.06% (-0.87pct) respectively, mainly due to the company's increased promotion efforts and inventory management against the backdrop of weak market recovery. Overall, 2024Q3 net profit margin was 15.85% (-0.32pct).

Next year's cost dividend is highly certain, and we look forward to an improvement in sales. Due to a decrease in the number of consumers consuming fresh drinks and heavy rainfall, the peak beer sales season was not strong this year. According to data from the National Bureau of Statistics, in Q3 2024, China produced 10.075 million kiloliters of beer above scale, a decrease of 5.3% over the previous year. The company is actively responding to the sluggish market and strengthening channel inventory management. Currently, major dealers have low inventory. Sales are expected to rise steadily in Q4 against the backdrop of a low base. Looking ahead to next year, the revenue side needs to pay attention to whether external consumer demand will warm up, and we look forward to an improvement in sales next year; on the cost side, as of September, the cost of imported barley fell 13.7% compared to the end of last year, and cost dividends are expected to continue to be released.

Investment advice: With the gradual implementation of consumer stimulus policies, the ready-to-drink scenario is expected to be actively repaired; in the medium to long term, the company's high-end product layout is improved, superimposed intelligence to improve efficiency, and profitability is expected to continue to improve. Due to the weak current consumption environment, we have lowered our profit forecast appropriately. We expect the company's net profit to be 4.263/4.634/4.996 billion yuan (previous value 4.848/5.385/5.94 billion yuan) for 2024/2025/2026, respectively, with growth rates of -0.12%/8.69%/7.83%, corresponding to EPS of 3.12/3.40/3.66 yuan (previous value of 3.55/3.95/4.35 yuan), corresponding to the current stock price PE 22.23/20.46/18.97 Maintain a “buy” rating.

Risk warning: Consumption recovery falls short of expectations, risk of fluctuations in raw materials, impact on food safety.