3Q21's performance is slightly higher than we expected.

When the company announced 3Q21 results, 1-3Q21 realized revenue of 1.098 billion yuan, an increase of 27.75%, and net profit of 128 million yuan, an increase of 48.53%. Gross profit margin / sales expense rate / management expense rate / return net interest rate changed respectively over the same period last year-2.42/-0.61/-1.13/+1.59ppt.

Of this total, the revenue of single 3Q was 334 million yuan, an increase of 19.16%, and the net profit of return to the mother was 39 million yuan, an increase of 110.39%. The gross profit margin / sales expense rate / management expense rate / return net interest rate changed respectively over the same period last year-0.7/-7.2/-0.7/5.1ppt.

This performance is slightly higher than we expected, mainly due to the increase in sales revenue of medium and high-end wines.

Development trend

The pace of recovery in corporate consumption accelerated in the third quarter, and the peak season in the fourth quarter is expected to continue to improve. We believe that Shanghai and Zhejiang, the main consumption areas of yellow rice wine in the third quarter, have not been repeatedly affected by the epidemic, the pace of recovery of yellow rice wine consumption has accelerated, and the company's 3Q operating income has increased by 8% compared with the same period in 19 years. The fourth quarter is the peak season of yellow rice wine consumption, we expect that yellow rice wine products will continue to improve in the catering channel, the revenue will recover steadily, and the consumption of medium and high-grade yellow rice wine will be concentrated in catering, which will contribute to the upgrading of the company's product structure throughout the year.

The company adheres to the high-end product strategy and focuses on the core products to optimize the product structure. Since the beginning of this year, the company has eliminated and integrated more than 200 products, focusing on the three high-end products of "national brew 1959, good wine not top, blue and white drunk", and develop specific products for the 2022 Asian Games to promote the high-end brand.

1-3Q21 medium and high-grade / ordinary wine increased by 32.45% and 10.37% respectively compared with the same period last year, and the product structure carding and high-end effect gradually appeared, offsetting some of the rising pressure on the cost of packaging materials.

The results of market cultivation outside the province are initially emerging, and it is suggested that we should pay attention to the nationalization process of yellow rice wine leader. Through tasting halls and specialty stores, the company accelerated its penetration into the vulnerable areas of yellow rice wine, opened an immersive experiential marketing model, strengthened the scene of quoting yellow rice wine in markets outside the province, and joined hands with the 2022 Asian Games to strengthen brand promotion throughout the country. 3Q21 sales revenue in areas other than Jiangsu, Zhejiang and Shanghai increased by 32.26% compared with the same period last year, and has returned to 95% in 1919. We believe that with the laying of channels outside the province and the promotion of brand construction, the national growth space of yellow rice wine leader may be gradually opened.

Profit forecast and valuation

Due to the faster-than-expected process of high-end and national cultivation of the company, we have raised the sales of medium and high-end wines, corresponding to an increase of 7.6% of the 2022 earnings forecast for 2021 PE, which is 6.9% to 1.67 billion yuan, and we have raised the target price by 6.9% to 11.3 yuan, corresponding to 2021 58.5/42.7X2021/2022 2022 61.8/45.0XP/E. The current share price is traded in 58.5/42.7X2021/2022 PE, which is 5.6% higher than the current stock price. Maintain a neutral rating.

Risk

Other kinds of wine put in aggressively and continue to seize the market share of yellow rice wine; it is disadvantageous to further cultivate the market outside the province; if we increase the marketing investment but the accuracy is not enough, it is difficult to broaden the consumption scene and consumer groups; the epidemic relapse.