The company reorganized its business structure and put forward the strategy of "one body and two wings". The operating income and gross profit of its brand have increased significantly. Through the restructuring of the business structure in the past three years, the business model has been upgraded from traditional supply chain business and distribution business to distribution + marketing business as the cornerstone and brand operation as the profit growth point model. With traditional supply chain business and deep distribution + marketing business with "380platform" as the core, the company maintains strategic cooperative relations with more than 2600 brands around the world, and distributes more than 400000 commodity categories. Covering more than 1.5 million retail terminals in urban markets at all levels across the country, the company has formed not only national offline network services, but also Southeast Asia, Europe, the United States, Australia and other countries and regions. Successfully built the country's largest scale and strong channel marketing ability of FMCG O2O distribution platform.

The company has used 24 years to build the full-chain integration capability, and its basic supply chain capability and offline 380 system give the company a strong barrier. The company can also use the "380 platform" low-cost focus to break into low-line cities with low development, huge market demand and high growth of fast consumer goods development. In the future, the proportion of the company's online and offline business is expected to change from 1:3 to 2:3. The company's 2021H1 realized operating income of 36.097 billion yuan, an increase of 25.6% over the same period last year. Brand operating business revenue in the textile, clothing and beverage industries increased by 158% and 300% compared with the same period last year, driving the gross profit of brand operating business to increase by 213%. The growth rate of IT communications and industrial raw materials business was remarkable, reaching 95.46% and 113.16% respectively.

"break the old and establish the new", gradually peel off non-performing assets, optimize the asset structure, and cost control help the net interest rate to rise. 2021H1's financial expenses were 696 million yuan, down by 0.24pct (- 14.66%) compared with the same period last year, of which interest expenses decreased by 102 million yuan, ROE increased by 3.19%, and net operating cash flow was 1.428 billion yuan (+ 807.85%). The net profit was 257 million yuan (+ 323.91%). The substantial increase in net profit was mainly due to the company's contribution to the closure of projects with weak profitability and large amounts of capital, instead of focusing on more profitable brand operations. The "distribution + marketing" model is the cornerstone of the company's development. 2021H1 brings the company a total revenue of 34.063 billion yuan, an increase of 21.95% over the same period last year. In the past, the company was limited by the high leverage of the supply chain enterprises, and the asset-liability ratio was high, but with the improvement of the quality and efficiency of the 380 platform and the divestiture of non-performing assets, it promoted the company's business transformation and expanded to the high value-added brand operation business. the company's financial risk can be reduced, the overall net interest rate increases, and the company's asset-liability ratio and financial expenses will continue to decline in the future.

Shenzhen controls the owner of Yiyatong, enabling the company to develop in an all-round way. Shenzhen Investment Control is one of the world's top 500 state-owned enterprises, which has been deeply cultivated in the fields of science and technology, finance and emerging industries for many years. Yiyatong is expected to get the support of ecological resources and enable the company to develop its multi-dimensional business. In 2018, Shenzhen Investment Control invested 2.4 billion yuan to become the largest shareholder of the company, providing strong support for the company's development, and the company's financing environment has been improved, mainly reflected in the upgrading of the company's corporate rating and bank credit line. In the same year, Shenzhen Investment Control and Yiyatong set up an industrial fund of 5 billion yuan; in 2019, it provided a maximum loan amount of 3 billion yuan to Yiyatong; by the end of March 2021, the company had received a total of 5.2 billion yuan in direct loans and credit support from Shenzhen Investment Control. The financial pressure has been effectively alleviated.

The concentration of liquor circulation industry is low, and there is still much room for improvement. China's alcohol circulation industry is a fully competitive industry, because of its low barriers to entry, the continuous emergence of new players, diverse distribution channels, scattered retail terminals, and fewer leading enterprises that account for a larger share of the market. compared with the more mature American alcohol circulation market, the sales management of alcohol products is more standardized, and the degree of market integration and concentration is higher.

By contrast, there is still much room for improvement in the concentration of China's alcohol circulation market. With the rise of alcohol e-commerce, large-scale circulation dealers with the help of e-commerce platform may become the trend of the times, while branding will become an important competitiveness.

Taking advantage of the wind of soy sauce and wine, the brand operation business breaks through the waves. In the company's brand operation, the alcoholic beverage sector is the current focus, bringing 550 million business income to the company in the first half of the year, combined with the relative peak consumption season in the second half of the year, the annual beverage revenue is expected to reach 1.2 billion yuan. According to the company announcement, it is expected that the basic goal in three years is to achieve a scale of 40-5 billion yuan in brand operation of alcoholic beverages. The company began to do brand operation since 2018, combined with user consumption trend directly connected manufacturing (C2M), fully tap the potential of the brand, in which the liquor sector is the most outstanding, only three years to successfully create a number of Maotai-flavor liquor IP, in the way of brand operation to achieve the Diaoyutai single sales first, Guotai single sales first good results, the company will further launch a number of brands in 2021 to enrich the product matrix. Although the production and sales share of soy sauce and wine is small, the product profit is strong, the gross profit is high, and the profit scale of the industry is relatively large, showing an overall growth trend.

The business model continues to be optimized and restructured, and the company may maintain a bright performance in the second half of the year. In the second half of 2021, the company will mainly focus on: 1) continue to promote the transformation of the business model, integrate the multi-dimensional efforts of the resource enabling company, and constantly improve the brand operation capability. 21H1 achieved a total revenue of 1.627 billion yuan in brand operation, an increase of 192.09% over the same period last year, and a gross profit of 292 million yuan, an increase of 213.03% over the same period last year.

In terms of brand operation, the new brand operation categories in the first half of the year include Abstract 12, Hongxing 1949, Baiao Ben Collection, Shanaluer, Milk Xiansen and so on, enriching the company's product matrix. 3) according to the company announcement, the estimated net profit from January to September 2021 is RMB3.8-420 million, an increase of 370% and 420% over the same period last year. The main contribution comes from the following reasons: 1. The company's operating income continues to grow, while vigorously promoting business structure adjustment, the proportion of brand operation and marketing business continues to increase. 2. The company issued new shares in private on July 27, 2001 to optimize the financing structure and effectively reduce financing costs. 3. The company thickens its profits by shutting down and transferring to companies with poor profitability.

Stable management, increase to promote the company's business transformation. The company's plan for an increase of no more than 2.8 billion yuan was approved in March 2021. The funds raised will be used for the company's business transformation, that is, supply chain projects and digital projects, which will help the company to expand its high-margin brand operation business and increase its overall net interest rate; this increase will also help to replenish the company's liquidity and improve its credit rating, while reducing the cost of capital and asset-liability ratio.

Profit forecast and investment advice: we believe that Yatong will benefit from the steady development of the "distribution + marketing" model, the accelerated development of high gross margin brand operation business, the gradual divestiture of projects with large capital occupation and low rate of return, and the steady landing of fixed increment. it is expected that the company's EPS will be 0.21,0.28,0.36 in 2021-2023, and the corresponding PE will be 36,26,21 times. Cover for the first time, giving a "hold" rating.

Risk tips: liquor marketing risk; management management risk; cash flow risk; industry competition intensified risk; new business development is less than expected risk.