Marking the Fourth Consecutive Year of Sustainable High-quality Growth Agile Channel Structure and Geographic Diversification Bolster Resilience Amid Industry Downturns

HONG KONG SAR – Media OutReach Newswire – 21 August 2024 – The first baijiu company listed on the Hong Kong Stock Exchange and the second Chinese sauce-aroma baijiu stock being publicly listed, ZJLD Group Inc. (“ZJLD”, the “Group” or the “Company”, SEHK stock code: 06979. HK), is pleased to announce its interim results for the six months ended June 30, 2024 (“FY2024 1H” or the “Period”).

The key financial and business highlights are as follows:

• The flagship brand, Zhen Jiu, stands as the main growth driver, its revenue increased by 17.2% from RMB2,305.9 million to RMB2,702.2 million during the Period. It contributed around 65.4% of the overall revenue during the Period, primarily driven by the growth of premium and above price range products, namely, the Zhen 15 Series, Zhen 30 Series, and deluxe package-free series.
• The gross profit increase was primarily due to the Group’s further focus on increasing the revenue contribution of products in the premium and above price range while steadily improving the overall gross margin by strategically optimizing the sales of mid-range and below product portfolios with low gross margins, and gradually replacing third-party produced base liquor with in-house production, which has lower associated costs, thereby bolstering profitability.
• As of May 2024, Zhen Jiu’s high-quality base liquor reserve reached 90,000 tons, and its production capacity surpassed 41,000 tons. This places Zhen Jiu among the top three Guizhou sauce-aroma baijiu companies, marking the brand’s entry into the “Mao-Xi-Zhen” era.

Resilient Performance Amid Sluggish Baijiu Market Recovery

During the Period, the baijiu industry grappled with economic pressures and evolving consumption patterns, resulting in a sluggish market recovery. However, ZJLD has been earmarked for outperformance amid market headwinds through its strategic agility. Underpinned by its proactive implementation of Zhen Jiu’s dual-channel growth strategy, the Group vigorously expanded its emerging sales channels and high-end customer base. It continued to enhance the distribution network and strengthen the market competitiveness of its sales channels. Additionally, the Group invested in expanding its storage capacity for premium baijiu while optimizing the allocation of resources across production costs and marketing expenditures. The Group also elevated its tasting events and distillery tours, creating the iconic and high-end “State Banquet * Zhen” (國之珍宴) experience that seamlessly integrates baijiu with culinary offerings, thereby stimulating growth in baijiu consumption.

Elevating the Premium Proposition and Diversifying the Brand Portfolio for Sustained Growth

The Group has demonstrated resilience by focusing on its premium and above-price-range baijiu products, with the revenue generated from the premium and above-price-range baijiu offerings increased from RMB2,193.6 million to RMB2,772.2 million, with its percentage share in the overall revenue rising from 62.3% to 67.1%.

Since Q4 of 2023, Zhen Jiu has implemented a dual-channel growth strategy, recognizing the distinct characteristics of traditional and emerging channels. This approach involves tailoring product portfolios, pricing mechanisms, and channel networks to the specific needs of each channel, maximizing the effectiveness and efficiency of developing distributor groups. This strategy has yielded both short-term growth and the cultivation of high-potential distributor groups in emerging channels for long-term benefits. Complementing this, ZJLD’s expansion through its “6+8+N” geographic strategy, well-managed channel inventory levels, and products with higher margins compared to its peers have contributed to the Company’s resilient demand in many targeted provinces with rising consumption of sauce-aroma baijiu. The Group’s long-term growth will undoubtedly be backed by its multi-brand portfolio and sufficient production capacity.

Consumer-Centric Distribution Network Backed by Expanding Production Capacity and Elevating Brand Experience

ZJLD Group has continued to work on building a consumer-centric distribution network that operates on a flat structure with nationwide coverage. The empowerment of distributors and the equitable sharing of benefits throughout the distribution network have been the key drivers in promoting the Company’s sell-through and sell-out performance. Concurrently, ZJLD has progressively increased its overall production capacity to cater to market demand, gradually expanding existing facilities and constructing new ones to boost its base liquor production. The Group’s continued investment in brand promotion has also created a strong brand presence in the baijiu industry, resonating with its target consumers. The newly launched acclaimed event series “State Banquet * Zhen” (國之珍宴) has gained widespread attention and appreciation in the baijiu industry, playing a pivotal role in enhancing Zhen Jiu’s brand power and supporting its continued expansion into the high-end customer segments.

Mr. Wu Xiangdong, Founder and Chairman of ZJLD Group, commented, “Looking into the coming months before end of 2024, we are confident and well poised to strengthen our market position further. We will continue to step up to the plate by implementing a comprehensive strategy focusing on key initiatives covering brand, production capacity, distribution channels and talent development. Firstly, we will launch new products, upgrade some of our key product series, and boost the revenue contribution from baijiu products within the premium and above price ranges. Secondly, we will allocate resources to increase our base liquor reserve, ensuring a robust supply to meet the growing demand. Thirdly, we will improve the quality of our distributor base and optimize our distribution channel structure, further enhancing our go-to-market capabilities. Lastly, we will put forth concerted efforts to strengthen our brand power, leveraging our unique cultural heritage and innovative brand experiences to support our business expansion.”

In a notable endorsement, Morgan Stanley issued a research report on 14 August, highlighting ZJLD Group’s superior positioning compared to its peers in the face of industry destocking pressure and has initiated coverage on ZJLD with an “Overweight” rating, expressing confidence in the Company’s long-term growth prospects. This positive assessment from a respected financial institution underscores ZJLD’s ability to navigate the evolving market dynamics and solidifies its leadership position in the baijiu industry.

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The issuer is solely responsible for the content of this announcement.

About ZJLD Group Inc.

Zhen Jiu was established in 1975 in Zunyi, Guizhou, China’s primary production area of sauce-aroma baijiu. In 1988, it was honored with the National Quality Award at the 5th National Wine Appreciation Conference. It is one of the “Three Representative Sauce Flavor Brands in Guizhou”, along with Moutai and Xijiu. In the same year, it was announced by the Protocol Department of the Ministry of Foreign Affairs, the Communication Department of the Ministry of Economy and Trade, and the Great Hall of the People Management Bureau to become one of the two sauce-aroma baijiu served at state banquets.

ZJLD Group Inc. is a leading baijiu group in China that is devoted to offering baijiu products, including sauce-aroma, mixed-aroma, and strong-aroma, with sauce-aroma being its core. In terms of revenue in 2023, the Company was the third-largest private baijiu company in China, according to Frost & Sullivan statistics. The Company operates four baijiu brands in China, including Zhen Jiu and Li Du, and two leading regional names, Xiangjiao and Kaikouxiao. ZJLD prides itself on inheriting the time-honored baijiu-brewing techniques and reinvigorating them to develop iconic products. It strives to create a wide variety of aromatic and mellow baijiu products to meet the diverse preferences of consumers, seize broader market opportunities, and promote traditional Chinese baijiu culture.