Incident: The company's revenue for 2024Q1-3 was 4.362/1.311/1.266 billion yuan (-1.89%/-2.81%/-4.89%), respectively; 2024Q3 company revenue/net profit attributable to mother/ net profit after deducting non-return to mother was 1.195/0.362/0.337 billion yuan (-22.04%/-27.72%/-32.34% YoY).

Q3 Liquor consumption demand is weak, and the company's revenue side is under quarterly pressure. 2024Q3's liquor business revenue was 1.172 billion yuan (-22.77% YoY), of which: high-grade liquor/mid-grade liquor/low-grade liquor revenue 1.139/0.013/0.021 billion yuan (YoY -22.70%/-55.30%/+26.54%); among them, premium liquor accounted for 97.13%, +0.09pcts year on year. We believe that the decline in Q3 company revenue was mainly due to the relative weakness in overall demand for liquor.

The province is still the company's basic market, and the Hefei market is gaining momentum due to new products. In terms of channels, 2024Q3 wholesale agents/direct sales (including group purchases) sales revenue was 1.129/0.043 billion yuan (-23.80%/+19.70%), and the number of 2024Q3 dealers increased net by 88 year-on-year, with a total of 1008 dealers at the end of the quarter, with an average dealer size of -29.51% to 1.1629 million/home. Regionally, 2024Q3 revenue within and outside the province was 0.952/0.221 billion yuan respectively (-22.09%/-25.59% YoY). Of these, revenue from within the province and outside the province accounted for 81.19%/18.81%, respectively, and the share from outside the province decreased by 0.71 pcts. Over the past 24 years, under the operating model of the platform company, it also has performed well in markets such as Hefei and the 200 yuan price range for 8 cards, and the brand's potential has rebounded.

The product iteration period structure was under phased pressure, and Q3 contract debt rebounded month-on-month. 2024Q3's gross margin/net profit margin was -5.90/ -2.38 percentage points to 71.91%/30.28%, respectively; sales expense ratio/management expense ratio -3.03/+1.27 percentage points to 12.38%/7.08%, respectively; operating cash flow -8.32% to 0.355 billion yuan; contract liabilities (including advance payments) -0.29/+0.038 billion yuan to 0.355 billion yuan, respectively, total revenue + advance payments YoY +3.61%.

The momentum of Kan8's new products is improving, and we look forward to the strength of the Kaneru series. Considering the relatively weak recovery in demand, we lowered our profit forecast. The company's revenue for 24-26 is 5.95/6.61/7.29 billion yuan (previous value 6.7/7.45/8.21 billion yuan), and net profit to mother is 1.68/1.92/2.15 billion yuan (previous value 1.99/2.27/2.53 billion yuan), corresponding PE is 15.3X/13.4X/12.0X, maintaining a “buy” rating.

Risk warning: Industry competition intensifies; consumer demand falls short of expectations; promotion of nationalization falls short of expectations; promotion of high-end products falls short of expectations.