Financial Report 2024 | Small Channels Winning Strategy? ZJLD's net profit in the first half of the year increased by over 20%

The consumption downgrade of the second-tier Baijiu has not yet affected ZJLD (6979.HK).

ZJLD's mid-year performance for 2024, released on August 21st, showed a revenue of 4.13 billion yuan, a year-on-year increase of 17.5%; achieving a net profit of 752 million yuan, a year-on-year decrease of 52.6%.

The main reason for the decline in ZJLD's net profit is the stock incentive expenses of 266 million yuan in the first half of the year. Excluding the impact of this factor, ZJLD's adjusted net profit reached 1.018 billion yuan, a year-on-year increase of 26.9%.

In terms of the proportion of products in different price ranges, the consumption upgrade of ZJLD is still ongoing.

High-end products contributed revenue of 1.09 billion yuan, an 18% year-on-year increase, with revenue accounting for 26.3%, an increase of 0.1 percentage points year-on-year; second-tier products contributed revenue of 1.68 billion yuan, a 33% year-on-year increase; mid-range and below products only increased by 3% year-on-year to 1.36 billion yuan.

Benefiting from the increased revenue contribution of second-tier and high-end products, ZJLD's gross profit margin increased by 0.9 percentage points year-on-year to 58.8%.

In terms of brands, in the first half of the year, "Zhenjiu" contributed 2.7 billion yuan, a 17.2% year-on-year increase; the second-largest brand "Lidu" contributed 670 million yuan, a 37.9% year-on-year increase; the year-on-year changes in revenue for "Xiangjiao" and "Kaikousmile" were 2.5% and -11.9% respectively.

Benefiting from the high-end strategy, except for "Xiangjiao", the ton price of the other three brands of ZJLD has increased to varying degrees, with the largest increase in ton price for Kaikousmile, which increased by 15.3% year-on-year to 143,000 yuan/ton, but still the lowest-priced brand per ton.

The highest ton price for "Kaikousmile" can reach 608,000 yuan/ton.

TradeWind01 learned from a Baijiu analyst at a securities firm in East China that ZJLD's channel operation strategy mainly focuses on small merchants (small distributors), with an average sales volume of only 70,000-80,000 yuan per distributor, significantly lower than other peers.

However, ZJLD's management capabilities for distributors are relatively stronger, and the current performance growth mainly relies on channel expansion.

In the first half of this year, ZJLD's net increase in distribution partners was 169 to 3,107, experience stores decreased by 119 to 1,061, and the number of retailers increased by a net of 49.

In comparison, Shede Jiuye (600702.SH), also in the second-tier category, has only 2,908 distributors, far fewer than ZJLD.

TradeWind01 learned from the above analyst that in the first half of this year, ZJLD established an independent business unit for the second-tier product "Zhen San Shi", in line with the company's high-end strategy, shifting the product from the original group buying channel to the circulation channel.

ZJLD personnel mentioned to TradeWind01 that the main reason for establishing the independent business unit for "Zhen San Shi" in the first half of this year is the good growth momentum of high-end products represented by "Zhen San Shi".

The company personnel mentioned that in the second half of the year, ZJLD's overall strategy will still focus on the second-tier and above products. The establishment of the independent "Zhen San Shi" business unit is an innovative move to adapt to the pressure of the industry, consumer upgrades, and changes in the consumer market. It aims to break out of the traditional red ocean competition in channels, create a way out, further accelerate market expansion, and promote the long-term development of the brand "On the focus of efforts, ZJLD Thirty, ZJLD Fifteen, and the 2013 vintage will all be the focus of market efforts," said the company's relevant personnel.

The day after the performance announcement, ZJLD's stock price fell by 4.05% to HKD 7.1 per share, with a year-to-date decline of 24.56% as of August 22