Key points of investment

Incident: The company released its 2024 interim report and 2024-2026 cash return announcement. 1) 2024H1 achieved total operating income of 83.451 billion yuan (+17.56%) and net profit to mother of 41.696 billion yuan (+15.88% year over year). 2) Promise that in 2024-2026, the total amount of cash dividends distributed annually will not be less than 75% of the net profit realized to the mother in the current year, and the cash dividends will be implemented twice (annual and interim dividends).

By product, 1935 completed the task ahead of schedule, driving a high increase in the revenue of the wine series. Maotai Liquor 2024H1 revenue was 68.567 billion yuan (YoY +15.67%); serial wine revenue was 13.147 billion yuan (+30.51% YoY). Among them, Q2 Maotai's revenue was 28.86 billion yuan (+12.92% year over year), which is expected to be mainly due to flying price increases and increased sales of non-standard products Zodiac and 100ml Xiaomao; revenue for series wine series was 7.211 billion yuan (+42.52% year over year), mainly due to 1935 exceeding progress and completing the task target for the first half of the year. By channel, the share of revenue from direct sales channels has declined. 2024H1 direct sales revenue was 33.728 billion yuan (YoY +7.35%), wholesale agent revenue was 47.986 billion yuan (YoY +26.50%). Looking at Q2, direct sales revenue was 14.409 billion yuan (+5.85% YoY), and wholesale agent revenue was 21.662 billion yuan (YoY +27.39%), of which iMaotai's revenue without tax was 4.907 billion yuan, +10.64% YoY. The share of direct sales revenue fell 4.52 pct to 39.95% year over year, mainly due to the company's slowing down of group purchases.

Profitability is stable and cash flow is excellent. 1) Profit side: 2024H1 gross margin was 91.76% (YoY -0.04pct), net sales margin 52.70% (YoY -0.96pct), of which Q2 gross margin was 90.68% (YoY -0.12pct). Net margin was 50.60% (-0.89pct year over year). 2) Expense side: The cost rate for the 2024H1 period was 6.90% (-0.03pct year on year), of which the sales rate was 3.14% (+0.62pct year on year) and the management rate was 4.60% (-0.80pct year on year). 3) Cash flow: 2024H1 contract debt of 9.993 billion yuan (+36.25%), higher than revenue growth. Some dealers are expected to make early three-quarter repayments at the end of June; sales revenue is 87.094 billion yuan (+26.09% year over year), and net cash flow from operating activities is 36.622 billion yuan (+20.52% year over year).

Regular dividend planning boosts confidence. In 2024-2026, the company plans to increase the regular dividend ratio from an average of 51.9% over the past 5 years to more than 75%, further improving the certainty of return. According to the August 9 stock price estimate, the dividend rate is about 3.6%. In the context of low interest rates and in combination with steady performance growth, it is highly attractive to long-term investors and is expected to support the stock price.

Investment advice: The company has a deep moat and steady performance growth. After the regular dividend rate increases, the long-term allocation value is further highlighted. Net profit due to mother in 2024/2025/2026 is expected to be 87.647/101.694/116.026 billion yuan, respectively, with year-on-year growth rates of 17.28%/16.03%/14.09%, corresponding EPS of 69.77/80.95/92.36 yuan, and corresponding PE of 20.58/17.74/15.55 times, maintaining the “buy” rating.

Risk warning: large price fluctuations; macroeconomic fluctuations; production increases falling short of expectations; food safety.