Incident: The company released its 2024 three-quarter report. 2024Q1-Q3 achieved operating income of 2.775 billion yuan, +41.15% year over year; realized net profit of 0.19 billion yuan, +19.55% year over year; realized net profit deducted from non-mother of 0.19 billion yuan, +19.45% year over year. Looking at a single quarter, 24Q3 achieved operating income of 0.687 billion yuan, +4.69% year over year; realized net profit to mother of 0.045 billion yuan, -26.09% year over year; realized net profit deducted from non-mother 0.044 billion yuan, or -27.05% year over year.

The basic market business is growing steadily, and the long-term trend of online alcohol development continues. The company achieved total revenue of 2.775 billion yuan/YoY +41.15% in 24Q1-Q3, and 0.687 billion yuan/YoY +4.69% in single Q3.

We believe that the company, as a leading e-commerce operating platform, is affected by the combined influence of e-commerce sales festivals and seasonal fluctuations in liquor consumption. 24Q1 led to a sharp year-on-year increase in revenue due to the misalignment of the New Year's Festival and the peak sales season of traditional Spring Festival alcohol. Q2-Q3 is a low season for traditional liquor consumption. Affected by the relatively high base of 23Q3, revenue deceleration is a normal phenomenon. Against the backdrop of a smooth transition in the overall alcohol sales atmosphere, the company achieved steady growth in revenue with strong supply chain capabilities and operating capacity barriers.

Q3 Gross margin continued to improve, investment in platforms and promotion expenses increased, and the government subsidy base affected the overall net interest rate level. Looking at profit-side performance, 1) Gross profit side: The company's gross profit margin for 24Q3 was 25.23%, +3.14pcts year over year. We believe that the gross margin level of standard products and developed products improved year-on-year and increased the overall gross profit margin. 2) Rate side: The company's cost rate for the 24Q3 period was 17.8%, +2.4 pcts year over year, with sales/management/ R&D/finance rates of 13.45%/3.86%/0.37%/0.11%, respectively, and +1.9/+0.2/+0.2pcts, respectively. We believe that the increase in the sales expense ratio was mainly due to the increase in the business expansion phase, platform and promotion fees. The slight increase in the management fee rate was mainly due to the company's emphasis on team development, and the increase in the number of employees and employee remuneration. At the same time, due to the increase in government subsidies in 23Q3, the other revenue base was higher. Under the combined influence, the company's net interest rate for the 24Q3 order was 6.53%, -2.72 pcts year-on-year.

The off-season stabilization structure was upgraded, and manufacturer cooperation continued to be deepened. We look forward to the gradual release of incremental business performance. We believe that traditional liquor sales in the off-season are based on strong operating capacity, showing resilience. From the perspective of business growth, we added a new Beijing Xifengjiu flagship store in June '24, launched the “Master Master” series of new products in August, and 24H1 opened a new Zhijiao Liquor flagship store through Douyin, Kuaishou, WeChat video accounts and other channels in terms of live streaming, the official flagship store of Wuliangtouqu Liquor, the century-old Luzhou Laojiao Liquor flagship store, Luzhou Laojiao Liquor flagship store Live broadcast rooms for brands such as Touqu Liquor Flagship Store, Qinghua Fenjiu Premium Liquor Store, and Xifeng Liquor Flagship Store, Recently, Xi Jiu Zhijiao's sales performance was outstanding (weekly store turnover of 10 million+ from August 30 to September 6). The customer matrix and relationships with leading manufacturers continued to expand, and we look forward to the long-term performance of the incremental business.

The trend of increasing the online penetration rate of liquor remains unchanged. Focus on the performance of subsequent major promotions and the promotion of cooperation among manufacturers. In mid-October, the 2024 Jiuai Big Sale Season was launched to save for the big promotion and peak season. We believe that as the leading e-commerce platform for liquor, the company's big promotions and performance during peak seasons such as New Year's goods and Spring Festival contributed greatly to the increase in performance. Looking at medium- to long-term logic, the alpha model of rapid expansion of online liquor beta+ companies with strong supply chains and strong operating capabilities continues. It is expected that in the future, it is expected that through brand expansion, category resource expansion, and deepening cooperation to develop products, co-drive growth. In the process of continuous online development of liquor, it will accelerate the elimination of traditional terminals without core customer resources. The company's equity incentives anchor a three-year profit CAGR increase of 30%. We are optimistic about high growth in the medium to long term, and we still need to pay attention to the performance of subsequent major promotions throughout the year.

Profit forecast and investment advice: We expect the company's 24-26 revenue to be 3.89/4.95/6.1 billion yuan, respectively, and net profit to mother 0.27/0.35/0.44 billion yuan, respectively. The current stock price corresponds to the 24-year P/E of 14X, maintaining a “highly recommended” rating.

Risk warning: risk of weak retail environment; risk of increased market competition; risk of fluctuations in e-commerce platform operations