On August 19, Anhui Kouzi Distillery Co.,Ltd. disclosed its semi-annual report, showing revenue of 2.531 billion yuan for the first half of the year, down 20.07% year-over-year, and net profit of 715 million yuan, declining 24.63% year-over-year.
Second-quarter revenue plummeted 48.48%, nearly halving compared to the same period last year. In Q3 2024, Anhui Kouzi Distillery's operating revenue first experienced a 22.04% decline. After a slight recovery in Q4 last year and Q1 this year, Q2 saw another significant downturn.
The second-quarter alcohol ban policy significantly impacted Anhui Kouzi Distillery's sales performance. The company disclosed that "mid-to-high-end liquor sales were significantly affected" and "the number of graduation banquets and liquor demand declined markedly." Meanwhile, as the sales expense ratio increased, Anhui Kouzi Distillery's net profit margin also declined substantially, now falling below that of Yingjia Tribute Wine.
**Q2 Revenue Plunges with Operating Cash Flow Turning Negative**
In the annual report, Anhui Kouzi Distillery stated that since 2025, market differentiation and channel changes in the liquor industry have intensified, with production continuing to shrink and sales growth slowing. Particularly under the influence of sluggish consumption and other factors, the industry's overall development has been under pressure, with declining demand, poor sales momentum, and high inventory levels becoming industry norms.
In fact, beyond the industry's macro environment, changes in the provincial market environment have also had an impact. At the earnings conference held at the end of June this year, when investors asked about "How are Q2 market sales? Have recent alcohol bans and graduation banquet restrictions affected the company's banquet market?" management responded: "Q2, especially after the alcohol ban, terminal sales momentum relatively slowed. The alcohol ban significantly impacted mid-to-high-end liquor sales. Judging from banquet hotels and terminal graduation banquet bookings, both the number of graduation banquets and liquor demand declined significantly compared to the same period last year."
Anhui Kouzi Distillery's main revenue source is the Anhui provincial market, with core products being the Kouzi vintage wine series priced between 100-400 yuan. This price range belongs to the mid-range and sub-premium segments, primarily consumed at weddings and business banquets. Under current market conditions, it has been significantly affected.
In fact, last year's Q3 revenue decline was partly due to Anhui Kouzi Distillery's proactive inventory control and destocking efforts. How the recovery progresses in the second half of this year requires continued observation of sales momentum.
With revenue declining significantly, Anhui Kouzi Distillery's cash collection ratio dropped to 89%, and net operating cash flow turned from positive to negative, with a net outflow of 383 million yuan.
Meanwhile, inventory increased further from 5.493 billion yuan to 6.159 billion yuan, with inventory turnover days rising from 1,242 days last year to 1,585 days. Before 2023, inventory turnover days had consistently been around 1,100 days.
In recent years, Anhui Kouzi Distillery has been expanding capacity. As of the first half of this year, fixed assets reached 3.259 billion yuan, with construction in progress at 942 million yuan. Currently, there are still 5 construction projects on the books that remain incomplete.
By 2024, the company's designed liquor production capacity reached 80,000 kiloliters, with actual output of 39,500 kiloliters, representing a capacity utilization rate of only 49%. When new capacity comes online in the future, if not absorbed in time, it could further reduce the company's capacity utilization rate.
**Declining Sales Expense Ratio and Controlling Shareholder Reduction**
Anhui Kouzi Distillery was originally the second-largest Anhui liquor company but has been overtaken by Yingjia Tribute Wine in recent years.
Anhui Kouzi Distillery's decline is mainly attributed to its large distributor system, with only one to two distributors per prefecture-level city. Core distributors hold company shares, creating deep interest alignment. Anhui Kouzi Distillery provides distributors with substantial profit margins while delegating market expansion and marketing investments to distributors.
This model's advantage is facilitating rapid market expansion while controlling marketing expenses and maintaining high net profit margins. However, the disadvantage is weaker manufacturer control over channels, disconnection from end consumers, and hindered new product promotion and investment.
Since 2017, during the provincial mainstream price segment's upgrade to the 300+ yuan sub-premium market, Yingjia Tribute Wine responded quickly by launching its ecological cave-aged series and establishing a dedicated sales company for promotion. In contrast, Anhui Kouzi Distillery responded slowly, missing this consumption upgrade opportunity and being overtaken by Yingjia Tribute Wine.
In recent years, Anhui Kouzi Distillery has begun channel reforms, changing from the large distributor system to a "1+N" small distributor model, further transitioning to a "platform operation" model. It has extensively employed group-buying and special-purpose distributors, using small distributors to assist large ones, covering previously blank market areas and channels. The number of distributors continues to increase, with a net addition of 68 in 2024 and 63 in the first half of this year. However, the effectiveness of these reforms during an industry downturn remains questionable.
From a product perspective, in 2023, Anhui Kouzi Distillery updated its Jian series, gradually replacing Kouzi 10/20/30-year products, intending to position them as core products in the sub-premium and premium price segments.
However, under current market conditions, product upgrades face considerable difficulty. According to management, mid-to-lower-priced products in the Jian series currently have good sales momentum, while high-end Jian series sales fall short of expectations. Jian 5, Jian 6, and Jian 8 product prices remain stable, while Jian 10 and Jian 20 prices are slightly below guidance prices.
The company's sales expense ratio reached 15.28% in 2024, nearly 3 percentage points higher than in 2021. This was mainly due to increased consumer-targeted promotional investments last year, leading to higher sales expenses. Promotional investments essentially amount to disguised price cuts but failed to salvage sales.
Meanwhile, net profit margins began declining, falling to 28.25% in the first half of 2025, nearly 2 percentage points lower than the same period in 2021. Based on 2024 data, Anhui Kouzi Distillery's net profit margin was 27.52%, while Yingjia Tribute Wine's was 35.33%, indicating Anhui Kouzi Distillery has lost its net profit margin advantage over Yingjia Tribute Wine.
With declining performance, major shareholders have also begun reducing holdings. On July 20 this year, Anhui Kouzi Distillery disclosed Liu Ansheng's reduction plan. Liu Ansheng plans to reduce holdings of no more than 10 million shares through block trading within the next three months, representing 1.67% of the company's total share capital. Liu Ansheng and Xu Jin are Anhui Kouzi Distillery's actual controllers, with Liu Ansheng and his concerted parties holding a total of 42.01% of shares.
In September 2024, Liu Ansheng transferred 1.08% of shares to Xu Jin through block trading, reducing his shareholding ratio from 11.66% to 10.58%. If the maximum reduction is executed, his shareholding ratio will drop to 8.91%. Based on the current stock price of around 34 yuan, this would represent approximately 340 million yuan in cash proceeds.
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