The 2021 and 1Q22 results were both slightly lower than our expectations
The company announced 2021/1Q22 results: 2021/4Q21/1Q22, the company achieved revenue of 39.53/1282/1,166 million yuan, an increase of 16.42/6.58/ 2.82%, and achieved net profit of 500/0.49/291 million yuan, 6.21/-27.66/ 1.34% year-on-year. The 2021 and 1Q22 results fell slightly short of our expectations, mainly because wine sales fell short of expectations.
Development trends
The product matrix expands coverage, and high-quality large products promote high-end products. The company's product matrix covers all grades, high and low. More than 100 varieties of wine, brandy, sparkling wine, etc. form a diversified product matrix.
In 2021, wine/brandy/travel/other products achieved revenue of +16.9/+18.1/+5.2/ -60.1%, respectively. While taking into account the comprehensive development of multiple wine varieties, the company is gradually developing a mid-range, high-end and large single product strategy. 2021/1Q22 achieved a comprehensive gross margin of 58.3/62.7%, an increase of 2.6/1.4ppt, respectively. Among them, wine/brandy achieved gross margin of 58.2/59.9% respectively, an increase of 3.6/1.6ppt respectively. Furthermore, wine/brandy sales were -4.19/ +7.38% year over year in 2021, respectively.
Expense investment has been increased, marketing is being aggressive, and the focus is on consumer cultivation. Under the influence of demand contraction in the context of the epidemic, the company still adheres to the marketing concept of “asking for sales volume from terminals and growth from nurturing consumers”. 2021/1Q22 sales expenses increased 26.7/ 14.2% respectively. Among them, the 1Q22 sales expenses rate/management expenses rate/financial expenses ratio were +1.9/-0.2/-0.3ppt compared to 18.6/5.7/ 0.1%, respectively. The company focused more on target consumer group cultivation and core brand promotion. In the long run, the domestic wine consumption atmosphere and perception are taking shape, and we expect the company to benefit as an industry leader.
Revenue is on an upward trend, and the profit side may be under pressure. The domestic wine market faces a contraction in demand and supply shocks in 2022, and we expect the overall size to decline somewhat. Compared to other wine companies in the same industry, the company's leading advantage still exists. It is possible to partially hedge against sales volume and cost pressure through structural upgrades, etc., and the overall business situation is mainly stable.
Profit forecasting and valuation
Considering the impact of the pandemic on demand and supply, which spread to pressure on the profit side, we lowered our profit forecast for 2022 by -48.9% to 502 million yuan, and introduced the 2023 profit forecast of 630 million yuan for the first time. Profit side pressure may gradually recover in combination with subsequent consumption scenarios. Corresponding to the target price of A-shares falling 13.2% to $27.6, corresponding to 36.4/29.9xPE in 2022/23, the current A-share price corresponds to 35.0/28.7xPe in 2022/23, which has 4.2% upward room compared to the target price, maintaining a neutral rating; the target price of corresponding B shares was reduced by 29.7% to HK$13.0, corresponding to 2022/23 14.6/12.0xPE. The current B-share price corresponds to 2022/23 12.7/10.5xPE has 15.7% upside compared to the target price, maintaining outperforming industry ratings.
risks
Other types of wine are squeezing the wine market; fluctuating raw material costs, food safety, etc.
