Summary of Shede Liquor Industry Conference Call Company Overview - **Company**: Shede Liquor Industry - **Date**: November 1, 2025 Key Points Industry and Company Strategy - Shede Liquor adheres to four core strategies: aged liquor, multi-brand matrix, youth-oriented marketing, and internationalization [2][3][6] - Focus on high-end product structure, national product distribution, and brand internationalization without reducing market investment [2][3] - Implementation of a three-good pricing management system to stabilize prices and optimize channel costs [2][5] Financial Performance - As of Q3 2025, Shede Liquor reported revenue of 3.702 billion yuan and a net profit of 472 million yuan [3] - Significant growth in key products during the double festival season, with double-digit increases in sales and opening bottles [7] Market Dynamics - Positive performance in out-of-province markets, particularly in Shandong, with cities like Dezhou and Liaocheng showing over 50% growth year-on-year [9] - Strict control in the Henan market to maintain price stability, with expectations for gradual recovery in 2026 [10] Consumer Engagement and Marketing - Initiatives to engage younger demographics include establishing live streaming bases and expanding e-commerce efforts [4][5] - Launch of low-alcohol product "Shede Zizai" and innovative marketing strategies to attract new consumers [5][15] Inventory and Sales Management - Effective reduction of channel inventory through strict control of distributor shipments [8][22] - Anticipation of a healthier market state by the end of the year due to improved inventory management [8] Product Performance - Core products, especially premium offerings, saw approximately 50% growth in sales and opening amounts [13] - The T68 series outperformed other products, indicating strong consumer demand across various price segments [13] Future Outlook - The company expects challenges in the upcoming Spring Festival season but notes a gradual recovery in consumer confidence [11] - Emphasis on enhancing product quality without lowering prices to maintain brand value [18] E-commerce Strategy - E-commerce sales are expected to reach double-digit percentages, with a focus on reducing conflicts between online and offline sales [17] - Establishment of specialized teams to enhance e-commerce operations and capitalize on market opportunities [17] Distributor Management - The company has implemented a small and micro customer management project to support new distributors, particularly in weaker regions [20][21] - Stability among larger distributors remains intact, while smaller ones have been phased out due to performance volatility [19] Cost Management - Sales and management expenses have increased due to strategic investments and one-time costs, but overall efficiency is expected to improve [23] Long-term Incentives - Ongoing long-term incentive plans for employees, including stock options and employee shareholding programs [24] Regional Challenges - The decline in the Sichuan market is attributed to high inventory levels, prompting proactive inventory reduction measures [25] This summary encapsulates the key insights and strategic directions of Shede Liquor as discussed in the conference call, highlighting the company's resilience and proactive measures in a challenging market environment.

Core Viewpoint - The Chinese liquor industry is currently experiencing a significant downturn, referred to as its "darkest hour," with many companies reporting substantial declines in profits, including a 92.55% drop in net profit for Kuozi Jiao [1][2] Group 1: Industry Performance - The recent quarterly reports from the liquor industry are described as the "worst in a decade," with most companies showing accelerated profit declines [2] - Even leading companies like Kweichow Moutai reported a revenue of over 130 billion yuan with a 6.25% year-on-year growth in net profit, marking the lowest growth rate in nearly ten years [1][2] - The industry is transitioning from a phase of rapid growth to a more stable and mature development cycle, indicating a shift in investment logic [2][3] Group 2: Market Reactions - The market response to the poor performance reports has been mixed, with some investors remaining optimistic about a potential recovery, while others express concern [2][5] - Despite the negative reports, certain stocks like Gujing Gongjiu saw price increases, suggesting a potential market rebound and a shift towards rational investment considerations [5] Group 3: Long-term Outlook - The current downturn is seen as a necessary phase for the industry, allowing stronger companies to emerge and adapt, ultimately leading to a more resilient market [3] - High-end liquor and collectible old liquor maintain stable demand, providing a solid foundation for the industry despite overall demand slowing [4] - The high gross margins of leading companies, such as Kweichow Moutai at 91.29%, indicate that the long-term value of the liquor industry remains intact despite short-term adjustments [4]

Core Viewpoint - Shede Liquor's Q3 2025 report indicates a revenue of 3.702 billion yuan, with a net profit of 472 million yuan, reflecting a narrowing decline compared to the first half of the year despite significant industry pressure [1] Group 1: Industry Challenges - The overall liquor industry is under significant pressure, with weak demand in key consumption scenarios such as business banquets and holiday sales, leading to high social inventory and downward pricing pressure [1][2] - The industry is undergoing a deep adjustment characterized by "supply clearing," shifting growth momentum from scale expansion to value enhancement [2] Group 2: Company Strategies - Shede Liquor is implementing a strategy of price control and inventory reduction, maintaining stable pricing for core products despite industry-wide pricing pressures [2][3] - The company is enhancing operational efficiency through organizational restructuring, flat management, and precise cost control, resulting in an 8.81% decrease in operating costs and a 13.07% reduction in management expenses [3] Group 3: Product and Market Development - The launch of the low-alcohol product "Shede Zizai" has been successful, aligning with new consumption trends and achieving significant market interest, with over 12,000 orders within 36 hours of launch [4] - E-commerce sales have grown significantly, with a 40% year-on-year increase, becoming a key driver of revenue growth [5] Group 4: Financial Performance and Market Sentiment - The company reported a 16.46% increase in revenue from ordinary liquor sales, indicating stability in the market during the industry's adjustment phase [5] - Institutional investors have shown confidence in Shede Liquor, with several increasing their holdings, reflecting recognition of the company's long-term development logic [6][7]

Investment Rating - The report maintains a "Recommended" rating for the company [4] Core Views - The company reported a decline in revenue and net profit for the first three quarters of 2025, with total revenue of 3.702 billion yuan, a year-on-year decrease of 17.00%, and a net profit attributable to shareholders of 472 million yuan, down 29.43% [1] - The company is focusing on a long-term strategy of "strong sales, promoting opening bottles, and destocking" to maintain healthy channel development, with expectations for profit margins to enter a slow recovery phase in 2026 [4] Financial Performance Summary - For Q3 2025, the company achieved revenue of 1 billion yuan, a decrease of 15.88% year-on-year, and a net profit of 29 million yuan, down 63.18% [1] - The gross profit margin for the first three quarters of 2025 was 64.73%, down 3.17 percentage points year-on-year, indicating a decline in profitability due to structural shifts and increased costs [3] - The company expects net profits to reach 391 million yuan in 2025, with a growth rate of 13.1%, and further increase to 569 million yuan in 2026 and 838 million yuan in 2027, with growth rates of 45.4% and 47.3% respectively [4][5] Product and Market Analysis - The main revenue from liquor in Q3 2025 was 867 million yuan, a decrease of 17.39% year-on-year, with mid-to-high-end liquor sales declining by 23.43% [2] - The company is launching new products to capture the banquet market, including the "Celebration Edition" of its flagship product, aiming to boost sales [2] - E-commerce sales showed significant growth, increasing by 71.41% year-on-year, while wholesale and agency sales declined by 23.38% [2] Forecast and Valuation - The company is projected to achieve revenues of 4.484 billion yuan in 2025, with a decline of 16.3% year-on-year, followed by a slight recovery in 2026 and 2027 [5] - The current price-to-earnings (PE) ratio is projected to be 53 for 2025, decreasing to 25 by 2027, indicating a potential for valuation improvement as profits recover [5]

Core Viewpoint - The baijiu industry is undergoing a deep adjustment cycle in 2025, facing challenges such as weakened consumer demand, high channel inventory, and increased sales pressure. However, Shede Liquor has demonstrated resilience in its Q3 report, with revenue of 3.702 billion yuan and a net profit of 472 million yuan, indicating a narrowing revenue decline and a 1.49 percentage point increase in gross margin to 62.09% [2][3]. Group 1: Financial Performance - In the first three quarters, Shede Liquor achieved a revenue of 3.702 billion yuan and a net profit of 472 million yuan, reflecting a strong performance amid industry challenges [2][3]. - The company's gross margin improved to 62.09%, and management expenses decreased by 13.07% year-on-year, while operating costs fell by 8.81%, indicating enhanced operational efficiency [3]. - E-commerce sales reached 450 million yuan, a significant year-on-year increase of 39.62%, driven by the company's focus on traditional e-commerce and emerging channels like live streaming [3]. Group 2: Strategic Initiatives - Shede Liquor has adopted a dual strategy of "high-end pricing and mass market support," alongside explosive growth in e-commerce, to stabilize its market position and cultivate new growth engines [2][3]. - The launch of the low-alcohol product "Shede Zizai" has successfully tapped into new consumer scenarios, achieving over 12,000 orders in just 36 hours on JD.com, expanding the company's product boundaries [4]. - The company is committed to a long-term strategy focused on channel expansion and brand enhancement, aiming to build differentiated competitive advantages through diverse marketing initiatives and deep ESG practices [5]. Group 3: Brand and Market Development - Shede Liquor has enhanced its brand influence through cultural marketing and market activities, including collaborations with popular media and the launch of high-end co-branded products [6]. - The company has engaged in various marketing activities to deepen emotional connections with consumers, enhancing brand exposure and sales conversion [6]. - Shede Liquor has integrated ESG principles into its operations, gaining recognition in the sustainability sector, which strengthens its market position during the industry's recovery phase [6]. Group 4: Market Outlook - As of October 31, Shede Liquor's stock closed at 62.09 yuan per share, with a 5.29% increase, indicating positive market sentiment [7]. - With the upcoming consumption peak in Q4 and ongoing policies to boost domestic demand, the baijiu industry is expected to see a rebound, with Shede Liquor positioned to benefit from its strategic initiatives [7]. - The company's Q3 report highlights its adaptability and growth potential during industry adjustments, suggesting that its proactive strategies may lead to substantial performance returns as the market recovers [7].

Core Insights - The food and beverage sector has underperformed the market, with a decline of 1.6% from January to October 2025, lagging behind the CSI 300 by approximately 37.2 percentage points, ranking last among primary sub-industries [4][11][25] - The snack segment has shown better performance with a growth of 32.5%, while beer, seasoning, and liquor have experienced declines of 9.7%, 6.5%, and 4.8% respectively [4][11][25] - The sector's price-to-earnings (PE) ratio has decreased by 10.4% compared to the end of 2024, with an expected net profit growth of 5.4% for 2025, leading to a 5.6% decline in market capitalization [4][17][20] Market Performance - The food and beverage sector has underperformed the market, with a decline of 1.6% from January to October 2025, ranking last among primary sub-industries [4][11] - The snack segment has shown better performance with a growth of 32.5%, while beer, seasoning, and liquor have experienced declines of 9.7%, 6.5%, and 4.8% respectively [4][11] - The sector's PE ratio has decreased by 10.4% compared to the end of 2024, with an expected net profit growth of 5.4% for 2025, leading to a 5.6% decline in market capitalization [4][17] Fund Holdings - In Q3 2025, the allocation of food and beverage in the overall market funds dropped to a new low of 6.4%, down from 8.0% in Q2 2025, marking the lowest level since 2020 [5][37] - The allocation in active equity funds also decreased from 5.6% in Q2 2025 to 4.1% in Q3 2025, indicating a significant reduction in food and beverage exposure [5][37] - The white liquor segment has seen a reduction in fund allocation, with companies like Luzhou Laojiao and Shede Liquor gaining more market favor due to their performance [5][42] Industry Judgment - The macroeconomic environment shows a weak recovery, with China's GDP growth at 4.8% in Q3 2025, slightly down from Q2 2025 [6][46] - Retail sales of consumer goods grew by 3.5% year-on-year in Q3 2025, reflecting a slower recovery pace, primarily due to the impact of the alcohol ban on dining consumption [6][46] - The food manufacturing sector has faced pressure, with revenue growth of only 1.5% and profit growth of 2.1% from January to September 2025, indicating a downward trend [6][52] Investment Opportunities - The food and beverage industry is expected to see a recovery from its bottom, with a focus on resilient consumer spending and improved economic activity [7][65] - The white liquor sector is nearing a left-side layout zone, suggesting gradual investment opportunities in companies like Kweichow Moutai and Luzhou Laojiao [7][68] - The snack segment is recommended for investment due to its growth potential, with companies like Wei Long and Ximai Foods highlighted for their market opportunities [7][69][62]

Core Insights - The white liquor industry has reported its worst quarterly performance in nearly a decade for Q3 2025, leading to a mixed market reaction, with some stocks rising despite the poor results [1][2] - The decline in performance is attributed to a weak macroeconomic environment, reduced business dining, high inventory turnover days of up to 900, and widespread price inversions [1][2] - The transparency shown by companies in disclosing their true performance figures is seen as a courageous step, indicating a willingness to accept the industry's adjustment cycle [2][3] Industry Performance - Many liquor companies experienced accelerated declines in performance, with some regional firms reporting net profit drops nearing 100%, exemplified by Kuaizhou's 92.6% drop in net profit [1][2] - The industry is transitioning from a phase of rapid growth to a more stable and mature high-quality development cycle, with increasing concentration as leading firms capture more market share [2][3] Investment Perspective - The core value of the white liquor industry is shifting from explosive growth to resilience and stable dividend attributes, prompting investors to reassess the investment value of the sector [3] - Despite a slowdown in overall demand growth, high-end liquor and collectible old liquor maintain solid demand, providing a stable foundation for the industry [3] - Leading companies continue to benefit from strong brand power, addictive consumption patterns, and cultural premiums, with high gross margins (e.g., Kweichow Moutai at 91.29% and Luzhou Laojiao at 87.11%) supporting their cash flow stability [3]

Investment Rating - The investment rating for the company is "Recommended" [1][5][11] Core Views - The company has experienced continuous adjustments in performance, with a notable highlight in its e-commerce channel [1][4] - The company reported a revenue of 3.7 billion yuan for the first three quarters of 2025, a year-on-year decrease of 17.0%, and a net profit of 470 million yuan, down 29.4% year-on-year [4] - The company is focusing on a clear product strategy, aiming for long-term growth potential despite current sales pressures in the liquor market [7][9] Financial Performance Summary - For 3Q25, the company achieved a revenue of 1.0 billion yuan, a decline of 15.9% year-on-year, with a net profit of 30 million yuan, down 63.2% year-on-year [4] - The company's gross margin for 3Q25 was 62.1%, a decrease of 1.6 percentage points year-on-year but an increase of 1.5 percentage points quarter-on-quarter [7] - The company’s revenue projections for 2025-2027 have been adjusted to 4.8 billion yuan, 5.3 billion yuan, and 6.0 billion yuan respectively [7][9] Revenue and Profitability Forecast - The projected revenue for 2025 is 4.998 billion yuan, with a year-on-year decline of 6.7% [6][9] - The net profit for 2025 is estimated at 478 million yuan, reflecting a growth of 38.3% compared to the previous year [6][9] - The company’s gross margin is expected to stabilize around 64.0% for 2025-2026 [6][9] Market Position and Strategy - The company is implementing a multi-brand strategy alongside a focus on product aging and internationalization to enhance growth potential [7][9] - E-commerce sales have shown significant growth, with a 71.4% increase year-on-year in 3Q25, indicating a shift in consumer purchasing behavior [7][9]

Core Insights - The Chinese liquor industry is experiencing significant downturns, with many companies reporting substantial declines in revenue and net profit, particularly among regional brands [1][2] - The "pay first, deliver later" model is weakening, leading to a doubling of accounts receivable for A-share liquor companies, with Kweichow Moutai's accounts receivable soaring to 5.235 billion yuan [1][7] - Cash flow is generally tightening, with several companies unable to cover interest-bearing liabilities, highlighting the increasing disparity between leading and smaller liquor firms [1][13] Financial Performance - Among 20 A-share liquor companies, only Kweichow Moutai and Shanxi Fenjiu reported revenue growth, while the rest faced varying degrees of decline [2][3] - Kweichow Moutai achieved a revenue of 128.453 billion yuan, up 6.36%, and a net profit of 89.403 billion yuan, also up 6.37%, demonstrating strong resilience [3][4] - The largest revenue decline was reported by *ST Rock, with a staggering 84.92% drop, while Shui Jing Fang's revenue fell by 38.01% [4][5] Accounts Receivable and Cash Flow - Total accounts receivable and notes receivable for A-share liquor companies reached 7.756 billion yuan, a year-on-year increase of 100.41% [9][10] - Kweichow Moutai's accounts receivable accounted for 4% of its total revenue, a significant increase from 0.94% the previous year [9][10] - Companies like Yili Te and Shede Liquor have high accounts receivable ratios, indicating substantial channel pressure [10][12] Cash Flow and Debt - The total cash and cash equivalents for A-share liquor companies decreased by 10.807 billion yuan year-on-year, with only six companies showing growth [13][15] - Companies like Shui Jing Fang and Shede Liquor are facing cash flow issues, with cash reserves unable to cover interest-bearing debts [13][16] - As of the third quarter of 2025, 13 companies reported an increase in interest-bearing liabilities, with Yili Te's liabilities rising significantly from the previous year [15][16]

Core Insights - Shede Liquor achieved a revenue of 3.702 billion yuan and a net profit of 472 million yuan in the first three quarters of 2025, amidst a deep adjustment in the liquor industry [1] - The company actively reduced inventory and implemented strategies such as old liquor strategy, multi-brand matrix strategy, youth-oriented strategy, and internationalization strategy, resulting in several operational highlights [1] Revenue and Growth - In the first three quarters, ordinary liquor generated a revenue of 625 million yuan, marking a year-on-year growth of 16.46%, with the strategic flagship product T68 continuing to experience rapid growth [2] - T68, launched in 2019, has become a new growth engine as it ranks among the top three in high-line bottled liquor categories in key markets [3] Product Innovation - The company launched a new product "马上有小酒" in September, priced at 98 yuan for a 100ml bottle, incorporating an innovative blind box concept [3] - In August, the company introduced the industry's first low-alcohol old liquor "舍得自在," priced at 329 yuan, leveraging advanced flavor selection technology [3] Market Strategy - The young drinking demographic presents significant potential, with a predicted market size of 4.9 billion for young drinkers in China [3] - Product innovation not only helps the company tap into the young drinking market but also reinforces its old liquor advantages and expands consumption scenarios [3] Channel Innovation - The company is accelerating its e-commerce channel layout starting in 2024, having established a deep strategic partnership with JD.com and collaborated with Meituan Shanguo [4] - The focus on e-commerce, ordinary liquor, and youth-oriented strategies has been the biggest highlight in operational performance for the first three quarters [4] Brand Strength - Shede Liquor's brand strength is a unique advantage, with its brands "Shede" and "Tuo Pai" being included in the "China's 500 Most Valuable Brands" for 22 consecutive years, with a total brand value of 190.698 billion yuan in 2025 [5] - The company has built a substantial old liquor inventory since 1976, which supports its old liquor strategy and enhances brand image through various marketing activities [5] Marketing and Promotion - The company participated in the 2025 Sustainable Global Leaders Conference and was recognized at the 2025 Responsibility China ESG Annual Ceremony for its commitment to ESG [5] - Collaborative marketing efforts, such as partnerships with popular programs and events, have enhanced brand visibility and sales [6][7]