Brand operation business contributes high profit flexibility and has strong potential.
2021Q3 Yatong achieved operating income of 17.004 billion yuan (+ 14.48%) and net profit of 158 million yuan (+ 667.10%). The significant increase in 2021Q3 net profit may mainly come from: 1) the investment income brought by the continuous closure and conversion of project companies with weak profitability and large capital consumption; 2) the profit elasticity of brand operation business continues to be released. The new products with high gross margin in the first three quarters are one of the sources of performance increment (abstract 12, Hongxing 1949, Bai Auburn Collection, Xiangna Lour, Milk Xiansen, etc.), while the enamel tonnage price of large items of Diaoyutai has been increased (price increase + structural upgrading). Since the company launched the brand operation business in 2019, the business structure has continued to upgrade. As the gross profit margin of the brand operation business is much higher than the overall gross profit margin of the company, it is expected to become a new profit growth point of the company in the future.
The bottom of profitability has passed, the cost control helps the net profit margin to rebound, 2021Q3's gross profit margin is 6.31% (+ 1.40%), and the net profit rate is 0.91% (+ 0.79%). The gross profit margin and net profit margin have rebounded since the bottom, mainly due to the continuous optimization of business structure, organizational structure and management refinement, the company's excellent operating efficiency, and the management expense rate decreased by 0.57% to 2.03%. Optimize the financing structure, effectively reduce financing costs, the financial expense rate decreased by 0.59% to 1.97%; in terms of sales expense rate, the sales expense rate of 2021Q3 increased by 0.69% to 1.41% over the same period last year, mainly invested in marketing and brand operation.
In addition, since the beginning of this year, the company has adhered to the "zero inventory" platform operation model, reducing the company's debt ratio through capital recovery and capital operation; by divesting the joint ventures with inefficient operating funds in the past 380 platforms, reducing operational risks and optimizing the financing environment. 2021Q3's interest expenses decreased by 50 million yuan, ROE increased by 1.81 percent to 2.16 percent, and net operating cash flow was-343 million yuan.
The business model will continue to optimize, and the strong performance at the profitable end of 21Q4 is expected to continue with the company's 21Q4:1) continuous layout of consumer goods races; 2) vigorously promote the upgrading of business models and constantly improve brand operating capacity; relying on digital transformation and integration of online platforms, it is expected that the company's online and offline business proportion in 3-5 years will change from 1:3 to 2Vant3) continue the digital transformation. Under the background of continuous structural adjustment, increasing proportion of brand operation and marketing business, continuous growth of absolute value of income, optimization of financing structure and weak profitability, the profit end of the company continues to perform strongly.
Beyond the expected development point: taking advantage of the trend of soy sauce and wine, the brand operation business is on the rise. Based on the understanding of small B, Big B and C end, the company began to cultivate, empower and operate high-quality brands since 2017, combined with consumption trend reverse accurate selection (C2M), fully tap the potential of the brand, and launch brand operation business in the field of large consumption. Among them, the performance of the liquor sector is outstanding-in 2020, the company's liquor brand operation business, such as Diaoyutai Enamel Color and Guotai Black Gold decade, achieved nearly 10 per cent of gross profit with less than 5 per cent of revenue. In 2021, the company will add a number of exclusive products to enrich the product matrix. In addition to the original large items, summary 12 launched by 21Q3 has begun to thicken the performance and can focus on it. Under the fever of soy sauce and wine, it is estimated that the scale will reach at least 4 billion yuan in 2025, and we predict that the liquor sector is expected to have a better-than-expected performance. As the company replicates the successful operation experience of the liquor sector to the fields of small household appliances and medical beauty with higher gross margins, we believe that the brand operation scale of the company can reach 10 billion yuan in 23-25 years, and the profit side can be expected.
Profit forecast and valuation
We believe that Yatong will benefit from the steady development of the basic plate, the accelerated development of high-margin brand operation business, and the gradual divestiture and fixed growth of the project. It is estimated that the income growth rate from 2021 to 2023 will be 15.4%, 12.5% and 11.8% respectively; the net profit growth rate of home will be 336.8%, 42.1% and 40.3% respectively, and the PE will be 29, 20 and 15 times respectively. Long-term performance growth is strong, the current valuation is cost-effective, maintain the buy rating.
Catalyst: consumption upgrading continues, and the introduction of high-priced products is smooth.
Risk tips: the second outbreak of the domestic epidemic affects the overall dynamic sales of spirits; the dynamic sales of high-end spirits are not as expected; financial problems; the risk of management change.