Incident: Recently, the WeChat store issued an official announcement announcing the official launch of the grayscale test for the “send gifts” function. Looking at the interactive method: When the giver user clicks “Send to a Friend” on the product page, they can pull up the “Confirm Gift” page, select the style, browse the amount, select the friend on the “Send a Gift” page, and send the gift after completing the payment. The recipient receives an interactive message similar to a New Year's red envelope on the chat page. After receiving the gift message, they can fill in the delivery address and click “Receive Gift”.

The WeChat gift delivery function was launched, and the WeChat e-commerce ecosystem was further extended. We believe that the way the WeChat gift delivery function interacts with this time is similar to the WeChat red envelope experience. Previously, WeChat red envelopes had formed a widely recognized and familiar interaction habit among users, and it was easy to get started with the gift-giving function. We believe that the expansion of the gift-giving function is a further extension of the WeChat e-commerce ecosystem. Previously, WeChat stores were the main carrier of the WeChat e-commerce ecosystem. Since this year, Tencent has been uniformly upgrading e-commerce carriers within the WeChat ecosystem, such as WeChat Mini Store and Video Store. In September, it was announced that it would drastically reduce the entry threshold and security deposit for merchants, gradually unify WeChat e-commerce carriers, and attract more merchants to enter. Expanding the basic structure of WeChat e-commerce, based on a strong user base and private domain traffic, WeChat e-commerce ecosystem is gradually being upgraded.

Using WeChat users' private domain traffic to open up new social fission scenarios, compounding the arrival of peak seasons such as the New Year's Festival, “social e-commerce” is expected to bring new channel dividends. We believe that in the short term, the WeChat gift function has the same natural social attributes as WeChat red envelopes. It is expected to explode during the next holiday season such as Christmas, New Year's Day, and Spring Festival, using users' private domain traffic to drive sales to WeChat stores (similar to the launch of WeChat Red Envelopes during the 2014 Spring Festival, which quickly drives the frequency of WeChat Pay usage). In the long run, the extension of WeChat's e-commerce ecosystem is expected to open up new social fission scenarios, and interactive methods that are more convenient for filling in addresses and more socially interactive are expected to bring a new round of channel dividends.

Liquor and Liquor Stores are connected to the WeChat gift delivery function, and products with a strong supply chain and high cost performance are expected to benefit from the expansion of emerging channels. Xinhuadu's own wine and wine store is connected to the WeChat gifting function. Various core developments, such as Wuliangtouqu Wuling Xiangrui Gift Box, Luzhou Laojiao Six-Year Cellar Headqu Gift Box, Luzhou Laojiao Six-Year Cellar Treasures, and Wuliangye Bashu Panda Liquor Gift Box are all connected to the gifting function. We believe that on the one hand, peak seasons such as the New Year's Festival and Spring Festival are coming soon, and demand for festive gifts is rising. On the other hand, popular price gift boxes with high-end food rations with top brand endorsements have an advantage in terms of cost performance. On the other hand, drinks themselves have social attributes, and category characteristics are suitable for social fission scenarios created by the WeChat e-commerce ecosystem. The company's core development products are expected to benefit from this round of channel transformation and deepen the penetration of emerging channels.

Continue to be optimistic about the development trend of online alcohol sales, and pay attention to the peak season catalysis for the Double Eleven & New Year Festival. The company is a scarce target for online alcohol sales. Due to the combined effects of e-commerce sales and seasonal fluctuations in liquor consumption, the basic market business grew steadily. In the first three quarters of 2024, it achieved a total GMV of 6.5 billion, an increase of 21% over the previous year. We believe that in the short term, we will focus on the company's Double Eleven promotion and peak season performance such as New Year's goods and Spring Festival. The medium- to long-term liquor expansion beta+ alpha model of the company's strong supply chain and strong operating capacity will continue. It is expected that in the future, we will drive growth together through brand expansion, category resource expansion, and deepening cooperation to develop products.

Profit forecast and investment advice: We expect the company's 24-26 revenue to be 3.89/4.95/6.1 billion yuan, and net profit to mother 0.27/0.35/0.44 billion yuan respectively. The current stock price corresponds to 24/25 P/E of 18/14X, respectively, maintaining a “highly recommended” rating.

Risk warning: risk of weak retail environment; risk of increased market competition; risk of fluctuations in e-commerce platform operations.