Incident: 2024Q2 Company's revenue/net profit attributable to mothers/net profit net profit excluding non-attributable net profit were 0.5/0.048/0.047 billion yuan, respectively (-13.27%/-60.87%/-59.86% YoY).

Q2 Internal revenue returned to normal, and the revenue side improved month-on-month. 24H1 Naesan/Alcohol/Xiangquan/Other Revenue of 1.73/0.591/0.049/0.177 billion yuan (-60.85%/-30.11%/+36.33%/-17.51% YoY). From a volume and price perspective, 24H1 sales volume was -44.44% to 250 tons, the tonnage price was -29.53% to 0.6914 million yuan/ton, drunkards sold -29.35% to 2,133 tons, and the tonnage price was -1.08% to 0.2772 million/ton.

24Q2 was shipped normally, and the Jiachen edition was successfully introduced; the Alcoholics series Red Altar and Internal Products continued to contribute to the positive momentum and successfully entered the banquet scene.

The construction of the 24H1 model market is progressing steadily, and the second half of the year is expected to drive continuous improvement in the company's operations. The number of 24H1 dealers decreased net by 473 to 1301. The average dealer size was -12.22% to 0.7608 million yuan/home. The decline in the number of dealers is expected to be mainly due to the company's continuous adjustment and optimization of channel customers over the past 24 years. Looking at the subregion, revenue within the 24H1 province and outside the province was 0.413/0.581 billion yuan, respectively (-33.68%/-36.74% YoY), and the share within the province increased by 1.15 pcts to 41.58%. In '23, the company proposed a model for building granaries within the province and trees outside the province. By the end of July, the first batch of 15 model markets for alcoholic liquor had all been launched. We believe that the subsequent model market is expected to gradually gain strength and drive continuous improvement in the company's operations.

The cost rate during the model market construction investment period has increased, and the profit side is under pressure. 24Q2 The company's gross margin/net margin changed year-on-year by -2.23/ -11.59pcts to 75.59%/9.52%; sales expense ratio/management expense ratio changed by +5.73/+0.96pcts to 35.45%/7.80%, respectively; operating cash flow was +168.00% YoY to 0.056 billion yuan. The month-on-month and year-over-year change in contract liabilities at the end of 24Q2 was +0.023/-0.19 billion yuan to 0.257 billion yuan. The decline in the company's gross margin is mainly due to the high gross margin revenue share falling by 11.25 pcts in the first half of the year. The increase in the sales expense ratio is mainly due to: ① the company continues to push for cost reform and increase market investment; ② the pre-investment of sales expenses during the model market construction period.

Reforms continue to be deepened, and we look forward to an inflection point in management. In '24, I am optimistic about the resilience of performance recovery brought about by the release of reform dividends. The company's revenue for 24-26 is estimated to be 2.43/2.71/2.99 billion yuan, and net profit to mother is 0.39/0.45/0.51 billion yuan, respectively. The corresponding PE is 30.0X/25.7X/22.6X, maintaining a “buy” rating.

Risk warning: Industry competition intensifies; consumer demand falls short of expectations; promotion of nationalization falls short of expectations; high-end product structure falls short of expectations; competition in the provincial market intensifies.