Key takeaway

Although Shede was affected by the deep correction of the baijiu industry in 2025, it achieved an operating revenue of RMB4.419bn (-17.51% YoY) and a net profit attributable to shareholders of the parent company of RMB223mn (-35.51% YoY). The short-term performance is under pressure. However, the company shows strong development resilience and a clear long-term strategy, which is worth looking forward to. The company's core advantages are stable. The aged baijiu reserves, ecological brewing, and national intangible cultural heritage craftsmanship build a solid quality barrier. The value of the dual brands of Shede and Tuopai exceeds RMB190bn. Fosun's empowerment continues to deepen. Meanwhile, mass-market baijiu grows against the trend. The e-commerce channel surged 35.46% YoY. The channel and product structure are continuously optimized. The dealer system is actively streamlined and improved. The cash flow improves marginally and the asset quality is solid. Long-term equity investment increases the integration of baijiu and tourism and the project of increasing production and expanding capacity. Coupled with a stable shareholder return policy, although it currently faces short-term challenges such as gross profit margin contraction and phased increase in expense ratio, with the clearing of industry inventory and consumption recovery, the company is expected to achieve performance repair and value return relying on core barriers and diversified presence.

Event

The company released 2025 earnings results.

The operating revenue in 2025 was RMB4.419bn, down 17.51% YoY. The net profit attributable to shareholders of the parent company was RMB223mn, down 35.51% YoY. The net profit attributable to shareholders of the parent company after deducting non-recurring profit or loss was RMB199mn, down 50.31% YoY.

The operating revenue in 4Q25 was RMB718mn, down 20.02% YoY. The net profit attributable to shareholders of the parent company was -RMB249mn. The net profit attributable to shareholders of the parent company after deducting non-recurring profit or loss was -RMB261mn.

Quick Take

Industry correction drags down the overall performance, and profitability is under short -term pressure.

In 2025, the company achieved an operating revenue of RMB4.419bn, down 17.51% YoY. The revenue of the main baijiu business was RMB3.853bn, down 19.55% YoY. It was mainly affected by common industry factors such as stock competition in the baijiu industry, weak consumer demand, and channel destocking. The overall sales end was under obvious pressure.

By product, the revenue of mid-to-high-end baijiu was RMB3.12bn, down 23.83% YoY. It is the core drag on the performance decline. The intensified competition and slowed sales in the sub-high-end baijiu industry had a significant impact. The revenue of ordinary baijiu was RMB733mn, up 5.75% YoY. Mass-market single products such as Tuopai premium T68 performed outstandingly. The mass-market cost-effectiveness track has become a stabilizer. The resilience of the dual-brand structure is evident.

By channel, the revenue of wholesale and agency channels was RMB3.249bn, down 25.19% YoY. Traditional large distributor channels are in the stage of destocking and structural adjustment. The revenue of e-commerce channels was RMB604mn, up 35.46% YoY. Online direct sales and new retail channels have made rapid breakthroughs. They have become the core engine of channel growth. The effect of omni-channel presence has begun to show.

From the perspective of regions and channels, revenues inside and outside the Sichuan Province both declined slightly, with a decrease of 20.19% and 19.25% respectively, as the national market undergoes a simultaneous corrective phase. The net number of distributors decreased by 138, with the number of exits exceeding the number of additions. The channel actively optimized and cleared out inefficient distributors. It focused on high-quality customers to pave the way for subsequent healthy sales.

Gross profit margin is under pressure, and cash flow has improved.

In 2025, the overall gross profit margin of the company was 62.04%, down 3.48 pcts YoY. The profit margin has shrunk, primarily driven by a downward shift in product mix, intensified price competition and shrinking economies of scale. By business, the gross profit margin of the baijiu business was 67.67%, down 3.26 pcts YoY. The gross profit margin of medium and high-end baijiu was 74.67%, down 1.48 pcts YoY. The gross profit margin of ordinary baijiu was 37.92%, down 2.17 pcts YoY. This was mainly affected by the increase in labor and manufacturing expenses.

On the expense side, the selling expense ratio in 2025 was 25.80%, up 1.97 pcts YoY. The R&D expense ratio was 1.86%, up 0.08 pct YoY. The administrative expense ratio was 10.81%, up 0.63 pct YoY. The financial expense ratio was 0.25%, up 0.73 pct YoY. The total period expense ratio was 38.70%, up 3.41 pcts YoY.

The net cash flow from operating activities was RMB-523mn. Although it was a net outflow, it narrowed by 26.08% YoY. The effects of collection and expense control have appeared.

Firm development confidence, optimistic about the long-term growth of Shede

In 2026, Shede will take the aged baijiu strategy as the core cornerstone. It will simultaneously promote the multi-brand matrix, rejuvenation and internationalization strategies. It will improve the ecological industry chain and enhance the quality of aged baijiu through intelligent production upgrades. It will strengthen core competitiveness around key tasks such as "FC2M, ecology, and scientific and technological innovation" and the theme of "strengthening the foundation, breaking the situation, and starting again". In terms of brand, Shede deeply cultivates the aged baijiu track, and Tuopai focuses on innovative breakthroughs. At the same time, it adheres to standardized and long-term development to empower marketing. In terms of marketing, it practices the "four unswerving" and "four power enhancements". It stabilizes the stock and breaks new ground with the strategy of "channel penetration, brand premiumization, and full-scale consumer-centricity". Operationally, the company is advancing baijiu-tourism integration, innovation-led R&D, and smart, green manufacturing upgrades. With a clear strategic roadmap and distinct competitive advantages, Shede’s long-term growth prospects remain compelling.

Earnings forecast: Downgrade the company's earnings forecast. It is estimated that the company will achieve a revenue of RMB4.6bn/RMB4.9bn/RMB5.2bn from 2026 to 2028, up 4%/5%/6% YoY. It will achieve a net profit attributable to shareholders of the parent company of RMB290mn/RMB380mn/RMB460mn, up 30%/31%/22% YoY. The corresponding PE is 52/39/32X, and we maintain the "buy" rating.

Risks: Expansion in markets outside the province falls short of expectations. Shede has a relatively weak foundation in markets outside the province. Market development requires large investments. The nationalization process of famous baijiu is accelerating. Market competition is fierce. There is some uncertainty in the expansion of markets outside the province. It needs timely tracking and observation.

Competition intensifies within Sichuan Province. While Sichuan-based brands maintain a competitive edge over out-of-province rivals, the local market remains highly fragmented. Numerous regional players are aggressively targeting the mid-to-high-end price segments, leading to intensifying intra-provincial competition.

Food safety risks. In recent years, food safety has always been the focus of consumers. The company is a food manufacturer and has to ensure food safety in all parts of the operation including production and sales.