Incidents:

Zhenjiu Lidu Shareholders' Meeting Research Feedback: Get fit and work hard. On June 21, Zhenjiu Lidu held the 2024 shareholders' meeting. The company reviewed the business situation in 2023 and provided detailed answers to core questions such as the company's 2024 strategic planning, product innovation, business development and liquor industry trends. The core feedback is as follows.

Key points of investment

By brand, Zhenjiu: With a clear dual-channel strategy and product upgrades, it is expected to contribute to growth in the second half of the year. Zhenjiu maintained good growth in the first half of the year, and maintained a high level of sales and bottling, mainly due to the great results achieved by Zhenjiu in implementing a dual-channel growth strategy and upgrading experiential marketing. Under the dual-channel growth strategy, the Zhenjiu Division and the Premium Liquor Division are more clearly positioned and targeted. Zhen30 switched from a group buying channel to a distribution channel, and still achieved double-digit growth in controlling the pace and channel switching in the first half of the year. It is expected that the increase will be further increased in the second half of the year. In terms of experiential marketing, Zhenjiu fully upgraded the original factory tour and tasting session to “Holy Land Tour” and “National Feast”. While comprehensively enhancing the brand image, it also provided a solid foundation for business expansion and transformation. On the product side, in the second half of the year, the company will upgrade the Zhen15 and Zhen30, upgrade the wine to improve product competitiveness and cost performance, and launch high-end banquet products. The Premium Liquor Division efficiently implemented the five-star partner acquisition and transformation approach, completed the growth target requirements ahead of schedule in the first half of the year, and continued to expand the number of partners in the second half of the year, bringing more growth to the high-end light bottle series.

Li Du: Broaden the product matrix and strengthen traditional channel distribution and national layout. Li Du adheres to the strategic shift from “small but beautiful” to “big and refined”, continuously broadening the product matrix and strengthening traditional channel distribution and nationwide layout. In terms of products, Li Du will establish two major product matrices, Lidu Sorghum and Li Duwang. The Lidu Sorghum series will mainly focus on group purchases, including Lidu Sorghum 1308 with a price range of over 1,000 yuan, 1955 in the 800 yuan price range, and 1975; the Li Duwang series will mainly focus on the 100-300 price range and assume the role of entering traditional channels. At the same time, Li Du achieved two styles of play within and outside the province, and the provincial market piloted product expansion in the full price range; the market outside the province focused on the Lidu sorghum series, established brand awareness, and expanded the core customer base.

Xiangjiao: Continue to cultivate the base market in Hunan through large-scale network strategy and experiential marketing. In 2024, Xiangjiao will focus on the strategic goal of improving the quality of dealers, and carry out channel penetration through implementing a large network strategy and strengthening experiential marketing. At the same time, along with the continuous increase in channel penetration in Hunan and driven by high product competitiveness, Xiangjiao is expected to achieve steady growth.

24-year outlook: Steady operations in the first half of the year, and brand adjustments are poised to begin:

1) Product aspect: Firmly adhere to the high-end brand route and focus on the 1,000 yuan price range. Zhenjiu will revolve around the 500-1000 yuan price range, and will continue to dominate the sub-high-end and high-end, focusing on the Zhen15, Zhen30, and light-bottled wine series. As the social recognition of real vintages continues to increase, the high-end light bottle series will continue to grow in the future. It is estimated that the high-end light bottle series will have a share of 23 billion in the next five years.

2) Regional layout: The company focuses on five core markets. Zhenjiu will focus on the five core provinces, including Guizhou, Henan, Shandong, Guangdong, and Hunan, and will continue to penetrate the core market in 2024. Sales in markets such as Guizhou, Henan, and Hunan maintained rapid growth in the first half of the year, and the Shandong market is expected to return to 1 billion+ scale when adjusted.

3) Channel aspect: The dual-channel growth strategy has achieved remarkable results. Under the dual-channel growth strategy, the Zhenjiu Division and the Premium Liquor Division are more clearly positioned and have more clear goals. Zhen30 switched from a group purchase channel to a distribution channel, and the increase is expected to increase further in the second half of the year.

4) In terms of production capacity, the current annual production capacity of rare wine has exceeded 0.041 million tons, and it is expected that this year's wine storage will exceed 0.1 million tons, providing a solid foundation for further expansion and competitiveness of high-end products.

Investment advice: The company's multiple brands work together, and it is expected that they will continue to benefit from the continuous optimization of the competitive landscape of soy wine, driving the accelerated development of high-quality leading brands. Overall, we expect 2024-2026 to achieve revenue of 8.449, 10.018, and 11.782 billion yuan, respectively, with year-on-year increases of 20%, 19%, and 18% year-on-year net profit of 1.996, 2.462, and 3.019 billion yuan, -14%, +23% year-on-year, corresponding EPS of 0.59, 0.73, and 0.89 yuan/share, respectively, and corresponding PE of 13.13, 10.64, and 8.68x, respectively. The first coverage gave a “buy-B” recommendation.

Risk warning: Consumer consumption recovery falls short of expectations; risk of market development; intensification of industry competition; risk of macroeconomic downturn, etc.