Core Viewpoint - The company reported a decline in revenue and net profit for the first half of 2025, with a significant drop in Q2 performance, indicating challenges in the market and adjustments in sales strategies [1][2]. Financial Performance - The company achieved a total revenue of 16.45 billion yuan for the first half of 2025, down 2.7% year-on-year, and a net profit attributable to shareholders of 7.66 billion yuan, down 4.5% [1]. - In Q2 alone, total revenue was 7.10 billion yuan, a decrease of 8.0%, and net profit was 3.07 billion yuan, down 11.1% [1]. - Sales collection in Q2 was 8.08 billion yuan, down 15.1%, with operating cash flow net amounting to 2.76 billion yuan, a decline of 28.7% [1]. Product and Market Analysis - For the first half of the year, revenue from mid-to-high-end liquor decreased by 1.1%, while sales volume increased by 13.3%, indicating a drop in average price per ton by 12.7% [2]. - Other liquor categories saw a revenue decline of 17.0%, with sales volume and price per ton both decreasing by 6.9% and 10.8% respectively, attributed to high channel inventory and reduced product launches [2]. - The core markets of Southwest and North China experienced slight pressure, while regions like Northwest and Henan are still in an adjustment phase [2]. Profitability and Cash Flow - Q2 gross margin decreased by 1.0 percentage points to 87.9%, primarily due to structural changes [3]. - The tax rate increased by 3.7 percentage points to 15.4%, likely due to misalignment in production and sales schedules affecting consumption tax [3]. - The net profit margin fell by 1.5 percentage points to 43.2%, with operating cash flow reflecting a similar decline to revenue [3]. Strategic Adjustments and Future Outlook - The company is proactively managing channel pressures and inventory levels, with a focus on stabilizing core product pricing and enhancing digital infrastructure [3]. - The company plans to introduce new products, including a 28-degree version of Guojiao 1573, to strengthen its low-alcohol product lineup [3]. - A three-year dividend plan has been established, with a minimum payout ratio of 65% for 2024, 70% for 2025, and 75% for 2026, enhancing long-term investment appeal [4]. Investment Recommendations - The company is expected to continue its adjustments and inventory management, which may stabilize the value chain in the second half of the year [4]. - The target price remains at 206 yuan, with a strong buy rating maintained based on the latest operational insights [4].

Group 1: Company Strategy - The company’s strategy includes "county-based" development as part of its "Four Modernizations" strategy, which also encompasses youth-oriented, international, and terminal-focused approaches [3] - County-based marketing is prioritized due to its alignment with the current economic environment in China, where county-level markets are less affected by economic pressures [3] - The company aims to optimize its product and marketing strategies to reflect county characteristics, especially within Qinghai Province [3] Group 2: Product and Market Development - The company has a diverse product range in the light bottle liquor market, including brands like Huzhu Daqu and Bai Qingke, with Bai Qingke performing notably well in the province [4] - Adjustments have been made to expand channels outside Qinghai, focusing on light bottle liquor and mid-range boxed liquor to align with market trends [4] - The company is responding to the trend of rational consumption by optimizing its product structure [4] Group 3: Regulatory Impact - The impact of the alcohol ban on regional famous liquors is relatively minor, as the company’s main products cater to daily consumer needs [5] - The company is accelerating its county-based strategy to mitigate the effects of the ban and is focusing on differentiating its products, particularly those made from barley [5] Group 4: Product Line Management - The star product series, which generates the highest sales, has undergone brand revitalization and the introduction of new variants to enhance visibility during key holidays [6] - The company is implementing volume control and price standardization across online channels to maintain profitability at retail points [6] Group 5: Youth-Oriented Products - The company is exploring the launch of youth-oriented products, including fruit-flavored options and a low-alcohol lemon liquor, with plans for a barley champagne in the future [7]

Investment Rating - The investment rating for the company is "Outperform the Market" [6][4][12] Core Views - The company achieved a total revenue of 31.2 billion yuan in 2024, with a year-on-year growth of 3.2%, and a net profit of 13.5 billion yuan, reflecting a year-on-year increase of 1.7% [1][4] - The company has set a shareholder return plan for 2024-2026, committing to a cash dividend of no less than 65%/70%/75% of net profit for each year [1] - The company is focusing on digital transformation, which is expected to enhance internal management efficiency and eventually lead to revenue growth as the consumer-centric model is established [4][3] Summary by Sections Financial Performance - In 2024, the company recorded a total revenue of 31.2 billion yuan, with a year-on-year increase of 3.2%, and a net profit of 13.5 billion yuan, up 1.7% year-on-year [1][5] - The revenue for Q4 2024 was 6.89 billion yuan, down 16.9% year-on-year, while the net profit was 1.88 billion yuan, down 29.9% year-on-year [1] - For Q1 2025, the company reported a total revenue of 9.35 billion yuan, with a year-on-year growth of 1.8%, and a net profit of 4.59 billion yuan, up 0.4% year-on-year [1] Product and Market Analysis - The sales of the Guojiao brand exceeded 20 billion yuan, while the Luzhou Laojiao brand surpassed 10 billion yuan in 2024 [2] - The revenue from mid-to-high-end liquor reached 27.6 billion yuan, with a year-on-year increase of 2.8% [2] - The company is actively expanding both traditional and new sales channels, with revenue growth of 3.2% and 4.2% respectively in 2024 [2] Cost and Margin Analysis - The gross margin for liquor business decreased by 0.8 percentage points year-on-year, primarily due to a reduction in the payment price for Guojiao [2] - The company managed to maintain a good level of expense management, with the tax rate and sales expense ratio showing slight increases [2][3] Future Outlook - The company has adjusted its revenue and net profit forecasts for 2025-2027, expecting revenues of 31.7 billion yuan, 33.4 billion yuan, and 35.5 billion yuan respectively, with year-on-year growth rates of 1.7%, 5.2%, and 6.4% [4][11] - The net profit forecasts for the same period are 13.6 billion yuan, 14.2 billion yuan, and 15.2 billion yuan, with year-on-year growth rates of 0.5%, 4.5%, and 7.1% [4][11]