The company announced 2024 interim results:

24H1: Revenue of 4.133 billion (+17.5%), adjusted net profit of 1.018 billion (+26.9%).

Revenue was in line with the market's unanimous expectations, and adjusted net profit exceeded the agreed market expectations.

Revenue: The volume and price of rare liquor has risen sharply, and Li Du has increased its market share

By brand, 24H1's revenue increased 17.2%/37.9%/2.4%/1.6% year-on-year respectively. Among them, Zhenjiu and Li Du contributed the main revenue growth. The sales volume/ton price of Zhenjiu 24H1 increased by 7.9%/8.6%, respectively, and achieved a sharp increase in volume and price. The revenue of the main products Zhen 15 and Zhen 30 is expected to increase by more than 20% year-on-year. Looking ahead to 24H2, through the establishment of the Zhen30 Division, the company is expected to drive the revenue of Zhen30 to accelerate month-on-month. The sales/tonnage price of Li Du 24H1 increased by 30.2%/5.9%, respectively, and the market share continued to rise. The core product 1955/1975 increased the willingness of terminals to prepare goods through upgrading, further expanding the market share within the province. At the same time, the penetration rate outside the province is also on the rise.

In terms of price, 24H1's highest/sub-high-end and lower end revenue increased 17.9%/32.6%/2.7% year-on-year respectively, with high-end and sub-high-end contributing to the main revenue growth. Among them, high-end growth is expected to be mainly contributed by Zhen 30; sub-high-end growth is mainly due to high growth in Zhen 15 and the upgrading of Li Du.

By channel, 24H1's distribution/direct sales revenue was +22.0%/-15.5%, respectively. Among them, the year-on-year decline in direct sales channel revenue was mainly due to companies optimizing product portfolios and reducing low-priced products in online channels.

In terms of revenue quality, the company's 24H1 contract debt reached 1.79 billion yuan compared to -0.064 billion yuan month-on-month, and the company's performance reservoir is sufficient.

Profitability: Fine wine drives higher profitability

24H1's gross margin was +0.9pct year over year, to 58.8%. Among them, the gross margin of Zhenjiu/Li Du/Xiangjiao/Kaikou Xiao was +1.2/-2.0/-1.4/+3.2pct, respectively. The increase in the company's 24H1 gross margin was mainly due to Zhenjiu. The increase in gross margin of fine wine is mainly due to a shift in product structure and a reduction in production capacity optimization in the proportion of outsourced base wine. During the same period, the company's sales/management rates were -1.2/+0.9 pct, respectively. Sales expenses were more accurate, and the cost efficiency ratio improved. Overall, 24H1's non-GAAP net margin was +1.8pct year-on-year, reaching 24.6%, driving performance beyond expectations.

Investment advice: maintain a “buy”

Our point of view:

24H1's main products still maintain high potential, and the profit side contributes elasticity driven by the upward shift in the structure of fine wine products and optimization of production capacity. Looking ahead to 24H2, the company will strengthen its fine operation capabilities through the division, and Zhen30 is expected to accelerate sequentially; at the same time, the company's launch of high-end banquet scene products (Treasures) is expected to contribute additional growth.

Profit forecast: Taking into account the company's increased profitability and equity incentive expenses, we kept our revenue forecast unchanged and adjusted the profit forecast slightly. In 2024-2026, the company is expected to achieve total operating income of 8.47/10.04/11.91 billion yuan, +20.4%/+18.6% YoY; achieve net profit of 1.67/2.15/2.7 billion yuan (previous value 1.84/2.25/2.78 billion yuan), -28.3%/+28.5%/+26.0% YoY, corresponding to adjusted net profit of 2.07/55/2.3.1 billion yuan, year-on-year + 27.5%/+23.0%/+21.9%; the adjusted net profit PE corresponding to the current stock price is 11.4/9.3/7.6 times, respectively, maintaining the “buy” rating.

Risk warning:

Demand falls short of expectations, market competition intensifies, new product promotion falls short of expectations, food safety incidents.