Summary of the Conference Call on Chinese Liquor Industry - 2Q25 Results Industry Overview - **Industry**: Chinese Liquor - **Companies Covered**: Lao Jiao (Luzhou Lao Jiao Co. Ltd) and Gujing (Anhui Gujing Distillery Company Limited) Key Financial Results Lao Jiao - **Sales**: Decreased by 8% year-over-year (YoY) in 2Q25, which was in line with expectations [6] - **Net Profit**: Decreased by 11% YoY in 2Q25, also in line with expectations [6] - **Operating Profit Margin (OPM)**: Decreased by 3.3 percentage points (ppts) [6] - **Gross Profit Margin (GPM)**: Decreased by 4.7 ppts due to a higher business tax [6] - **Operating Expenses Ratio**: Decreased by 1.3 ppts [6] Gujing - **Sales**: Decreased by 14% YoY in 2Q25, which was below expectations [6] - **Net Profit**: Decreased by 12% YoY in 2Q25, also below expectations [6] - **Operating Profit Margin (OPM)**: Increased by 1.0 ppt [6] - **GPM**: Remained flat, with a decrease in operating expenses ratio by 1.0 ppt [6] Product and Sales Mix - **Midrange to High-End Liquor Sales**: Accounted for 92% of core sales, with a decrease of 1% YoY (volume increased by 13%, average selling price (ASP) decreased by 13%) [6] - **Low-End Liquor Sales**: Decreased by 17% YoY (volume decreased by 7%, ASP decreased by 11%) [6] - **Sales Channels**: - Traditional wholesale offline channel (94% of liquor sales) saw a decrease of 4% YoY, with a GPM of 87.4% [6] - New online channel experienced an increase of 28% YoY, with a GPM of 83.5% [6] Customer Advances and Cash Position - **Customer Advances**: Increased to RMB 3.5 billion in 2Q25 from RMB 2.3 billion in 2Q24 [6] - **Cash from Selling Products**: Decreased by 15% YoY in 2Q25 to RMB 9.5 billion [6] - **Net Cash Position**: Increased to RMB 34.3 billion in 2Q25 from RMB 31.4 billion in 1Q25 and RMB 25.1 billion in 2Q24 [6] Regional Performance - **Northern China**: Sales decreased by 27% YoY [6] - **Central China**: Sales increased by 4% YoY [6] - **Southern China**: Sales decreased by 6% YoY [6] Analyst Reactions - **Anhui Gujing Distillery Company Limited**: Unchanged outlook with a modest shortfall and a modest revision lower [8] - **Luzhou Lao Jiao Co. Ltd**: Outlook remains unchanged and largely in line with expectations [8] Additional Insights - **Product Mix in 1H25**: Mid-market to high-end Vintage increased by 2% YoY to RMB 11.0 billion; mass market Gujing series decreased by 4% YoY to RMB 1.2 billion; low-end segment including Huanghelou increased by 7% YoY to RMB 1.5 billion [6] - **Cash Position for Gujing**: Cash from selling products increased by 19% YoY in 2Q25 to RMB 7.0 billion [6] - **Net Cash for Gujing**: RMB 15.3 billion in 2Q25 compared to RMB 16.2 billion in 1Q25 and RMB 16.0 billion in 2Q24 [6] This summary encapsulates the key financial metrics, product performance, and regional insights for the Chinese liquor industry, specifically focusing on Lao Jiao and Gujing for the second quarter of 2025.

Investment Rating - The investment rating for Luzhou Lao Jiao Co. Ltd is Equal-weight [5] Core Insights - The company reported 1.8% sales growth and 0.4% net profit growth year-over-year in 1Q25, which aligns with estimates [8] - The dividend payout ratio increased to 65% in 2024 from 60% in 2023, with targets of 70% and 75% for 2025 and 2026 respectively [8] - The company aims for steady revenue growth in 2025, despite a challenging market environment [8] Revenue and Profitability - Mid-high end liquor sales rose 3% year-over-year, accounting for 88.4% of total liquor sales, while low-end liquor sales increased by 6% in 2024 [2] - Operating profit margin (OPM) declined by 1.0 percentage points year-over-year in 1Q25, with a narrowed gross profit margin (GPM) due to a lower product mix [2] - In 2024, OPM contracted by 0.7 percentage points, driven by a 2.8 percentage point decrease in GPM, partially offset by savings in operating expenses [2] Financial Position - Customer advances were Rmb3.1 billion in 1Q25, down from Rmb4.0 billion in 4Q24 and Rmb2.5 billion in 1Q24 [3] - The net cash position improved to Rmb31.4 billion in 1Q25 from Rmb29.0 billion in 4Q24 and Rmb21.4 billion in 1Q24 [3] - Cash from selling products decreased by 7% year-over-year in 1Q25 to Rmb9.9 billion [3] Future Projections - The company projects net profit growth of 1.7% year-over-year in 2024, which is 4% below consensus estimates [8] - The price target for the stock is set at Rmb122.00, indicating a downside of 3% from the closing price of Rmb125.36 on April 25, 2025 [5] - Earnings per share (EPS) estimates for the fiscal years ending in 2024, 2025, and 2026 are Rmb9.58, Rmb10.10, and Rmb10.74 respectively [5]