Leading liquor e-commerce operator, spin-off retail to focus on internet marketing. Xinhuadu currently specializes in FMCG e-commerce operations and marketing. The company completed the divestment of the retail business in April 2022, focusing on the main Internet marketing business with the wholly-owned subsidiary Jiuaijihe as the main operator. In 2023, the company's Internet marketing business achieved revenue of 2,824 billion yuan, up 27.75% year on year, net profit of 217 million yuan, up 27.48% year on year. The business's revenue CAGR reached 36%. Driven by explosive growth in live e-commerce, the first quarter's performance greatly exceeded expectations. 2024Q1 achieved revenue of 1.4 billion yuan, +106.9% year over year, and achieved net profit of 94 million yuan, +47.1% year over year.

There is a major trend in the development of online liquor, and the penetration rate is low and the space is vast. According to Magic Mirror Insight data, the size of the online alcohol market in 2023 exceeded 120 billion yuan, an increase of 56.4%. Among them, liquor and mixed/wine/foreign wine increased by 77.7%/14.8%/5.2%/4.7% respectively, and the scale of liquor and condiments reached 90 billion yuan, which is the main driving force for the growth of the online alcohol market. Currently, the online liquor penetration rate is low and is expected to be in single digits. The penetration rate of the Chinese online retail market is about 27.6%. The online growth rate of liquor ushered in explosive growth under the catalyst of live e-commerce, and online penetration may have ushered in an inflection point. According to Feigua data, the sales growth rate of liquor on Douyin and Kuaishou platforms reached 82.42%/290.8% respectively in 2023. Interested e-commerce is driving the famous wine market to sink and reach more young people. As the advantages of e-commerce platforms in terms of logistics, price, and consumer reach rate gradually become apparent, it is expected that the online growth rate of liquor will continue to grow rapidly in the next few years, and there is plenty of room for improvement in penetration.

The company has cooperated deeply with many leading wine companies, such as Luzhou Laojiao and Shanxi Fenjiu, and has scarce tickets to official stores. The company has been the first to get online officially authorized tickets from many wine companies. Many years ago, the layout had a first-mover advantage. The company currently has more than 50 official flagship stores. Among them, cooperation with Luzhou Laojiao began in 2012 and then cooperated with Fenjiu. These two brands account for the majority of the company's revenue. The company has extensive experience in online operations and has a strong supply chain. The warehousing and logistics system covers the five main warehouses in North China, East China, Central China, South China and Southwest China, and has set up retail cooperative warehouses in 22 cities. In addition, as a listed company, it is expected to attract more brand cooperation in the future. In 2023, the company will expand brands such as Maotai health wine “Maoxian”, Gujing Gongjiu, Xi Jiu, Xifeng, and Wuliangye. Currently, the company mainly serves Laojiao and Fenjiu. In the future, it is expected to break through more official brand stores and brand product lines under the leading edge.

The company grasped the channel trend and expanded the live e-commerce platform to achieve rapid development. The company vigorously expanded the Douyin channel in 2023, fully enjoyed the channel dividends, and accelerated the deployment of Douyin teams and celebrity anchors.

Douyin e-commerce started quickly in less than a year, and the Douyin channel was naturally adapted to the development of non-standard products. The company vigorously developed non-standard products on the Douyin channel. The company customized large single products reached hundreds of millions of annual sales in six years. The new product Xianlin Ecology grew rapidly on the Douyin channel, and is expected to become another hot product after the six-year cellar.

Investment advice: Revenue growth is expected to be 38%/26%/22% in 2024-2026, the net profit growth rate is 34%/28%/23%, EPS is 0.37/0.48/0.59 yuan respectively, and the corresponding PE is 20x/15x/12x, respectively. The target price is 9.6 yuan based on the 2025 results, and the target price is 9.6 yuan, giving a “buy” rating.

Risk warning: Food safety risks, risks that the online penetration rate of liquor falls short of expectations, risks that industry competition increases, and channel development falls short of expectations.