Guolian: The fundamentals of the liquor sector hit rock bottom in Q3 2024, with a slowdown in report release speed.

Guolian released a research report stating that the fundamentals of the liquor industry in 2024Q3 are still bottoming out, with continued pressure on short-term returns, business demand still under pressure, and consumer demand stable. As macroeconomic policies are gradually introduced, pessimistic expectations for the mid-term outlook of the liquor sector are expected to improve, and short-term performance impact is expected to diminish. From a long-term perspective, the driving force of the liquor industry is gradually shifting from the demand side to the supply side, and there is still significant room for concentration. The cost dividend of beer continues, and the base further declines, with demand relatively weak and leading companies facing slight pressure on both volume and price, resulting in a slowdown in performance. Guolian's main points are as follows: Liquor: The pressure on the financial reports of the liquor sector in 2024Q3 is accelerating, and industry growth is slowing down The overall calculated revenue growth rate of key companies in the liquor industry in 2024Q3 is 2.41%, with high-end liquor/mid-range liquor/regional liquor revenue growth rates of +9.59% / -0.38% / -15.64%, respectively, representing a decrease of 4.65 / 8.87 / 23.32pct respectively compared to the previous quarter. The net profit growth rate of the sector in 2024Q3 is 1.80%, slightly slower than the revenue growth rate, with high-end liquor/mid-range liquor/regional liquor net profit growth rates of +9.19% / -2.04% / -31.64% respectively. High-end liquor shows steady growth and resilience; mid-range liquor differentiation intensifies; regional liquor significantly slows down, with expected performance from Gujing/Lao Baigan and lower-than-expected performance from Yijia/Jiangsu King's Luck Brewery Joint-Stock/Anhui Kouzi Distillery/Yanghe. Liquor: For most liquor companies, returns are slower than revenue, and the quality of financial reports is declining The overall calculated year-on-year decrease in revenue + contract liabilities of key companies in the liquor industry in 2024Q3 is 3.39%, with high-end/mid-range/regional liquor year-on-year revenue + contract liabilities of -0.93% / +5.13% / -14.92%. The overall calculated year-on-year growth in cash collection of key companies in the liquor industry in 2024Q3 is 1.50%, with high-end/mid-range/regional liquor cash collection year-on-year growth rates of +3.82% / +12.34% / -10.93%. Most liquor companies have slower returns than revenue, with Wuliangye Yibin performing relatively well, attributed mainly to all discounted bills due for collection in Q3, while the actual pressure on liquor companies' end sales and channels remains high. Liquor: Product structure upgrades in 2024Q3 slow down, and sector gross profit margin remains stable Due to the impact of the macroeconomic environment and consumer spending power, the peak season for gifts and weak business scenarios in 2024Q3 has led to weaker consumption of high-priced liquor, resulting in a slowdown in the upgrading of liquor companies' product structures. In addition to increased gifts and promotional discounts, the gross profit margin of the liquor sector remains stable. The overall calculated gross profit margin of key companies in the liquor industry in 2024Q3 increased by 0.25pct to 82.39%. The increase in selling expenses and business taxes pulled down the net profit margin, with the overall calculated sales expense rate/management expense rate/business tax and surcharge rate of the liquor sector in 2024Q3 increasing year-on-year by +0.17 / -0.01 / +0.23pct, leading to a year-on-year decrease of 0.23pct in the net profit margin to 38.14%. Beer: Weak demand in 2024Q3, cost dividend continues Demand is relatively weak, with slight pressure on both volume and price for leading companies and a slowdown in performance. In 2024Q3, the revenue of Tsingtao Brewery/Chongqing Brewery/Guangzhou Zhujiang Brewery decreased by 5.28% / 7.11% / 0.38% year-on-year, while Beijing Yanjing Brewery/Fujian Yanjing Huiquan Brewery saw increases of 0.19% / 6.89% respectively. The product structure performance is weak, but sales of mid to high-end products in Qingdao are still strong. The cost dividend continues, with liquor companies actively improving quality and efficiency, maintaining overall stability in expenses, and slightly slowing profit growth. Beijing Yanjing Brewery's reform and efficiency improvement led to a year-on-year increase in net profit margin of 19.84%, while Tsingtao Brewery/Chongqing Brewery/Guangzhou Zhujiang Brewery/Fujian Yanjing Huiquan Brewery saw net profit margins in 2024Q3 change year-on-year by -9.03% / -10.10% / +15.36% / +10.60% respectively. Investment Recommendations: The investment value of liquor is prominent, while beer focuses on undervalued leading companies Liquor: The sector's investment value increases from the perspective of dividend yield. Preferred targets with cost-effectiveness and stable growth in 2025 performance include Wuliangye Yibin(000858.SZ), Kweichow Moutai(600519.SH), Shanxi Xinghuacun Fen Wine Factory(600809.SH), Anhui Gujing Distillery(000596.SZ), Anhui Yingjia Distillery(603198.SH); followed by Luzhou Laojiao(000568.SZ), Hebei Hengshui Laobaigan Liquor(600559.SH), Jiangsu King's Luck Brewery Joint-Stock(603369.SH), etc.; recommend focusing on Jiangsu Yanghe Distillery(002304.SZ), Shede Spirits(600702.SH), Jiugui Liquor(000799.SZ), An...Golden Seed Winery has returned to the Shanghai Stock Exchange (600199.SH).Beer: recommended undervalued leaders Tsingtao Brewery (600600.SH), CHINA RES BEER (00291) and Beijing Yanjing Brewery (000729.SZ) with reform expectations, suggest paying attention to Chongqing Brewery (600132.SH). Risk Warning: food safety risk, intensified competition risk, cost fluctuation risk.