With the superposition of adverse factors, the industry has been in the doldrums in recent years. China accounts for 2 per cent and 4 per cent of global wine production and consumption in 2021, respectively, and the market is still small compared with western countries. According to the International Grape and Wine Association, China's wine consumption has declined continuously since 2017, with 1.05 billion litres of Chinese wine in 2021, a decrease of 45.3% from 2016, with a CAGR of-11.4%. The revenue of large-scale wine enterprises in 2021 was 9.03 billion yuan, a decrease of 81.4% compared with 2016, and the CAGR was-28.5% during the period. The decline in wine market demand has accelerated the clearing of some small and medium-sized enterprises. Since 2019, the decline in revenue has gradually narrowed, and the market size tends to be stable.
Competition among different types of wine intensified, and the proportion of imported wine increased. In recent years, due to the change of consumer demand, the competition among various kinds of wine is fierce. The wine market share in 2020 was 1.1%, down 3.8 pct from 2016. Among the other categories, the faster growth was in the liquor and fermented alcohol industries, with increases of 4.1pct and 2.6pct respectively. Although wine imports decreased year by year from 2016 to 2019 due to reduced demand in the domestic market, the share of wine imports in domestic wine consumption increased to 39.9% of 7.3pct, with a rapid expansion momentum. Imports fell 29.8% in 2020 compared with the same period last year, and there was some compensation in 2021, but it was still lower than before the epidemic, but the share recovered to 39.3%.
The company has led the industry in terms of size and growth for a long time, and this year's reform is unprecedented. In 2021, the company's revenue and net profit reached 39.5 and 500 million yuan respectively, returning to 78.6% and 44.3% of those before the epidemic. Revenue accounted for 43.8% of the total amount of domestic wine enterprises above scale, leading the industry by absolute advantage. At the beginning of this year, the company set up six sales departments, including Longyan, Chateau Wine, Cabernet, Brandy, imported Wine and online channels, and plans to set up 70 regional branches. Sixteen production units will also be docked into 5 offline sales department systems. And then solve the provincial ownership, the separation of production and marketing, the general generation of one business and other problems.
The brandy upgrade strategy has been effective, and the second growth curve has been formed. As the first wine enterprise in China to distribute brandy business, the revenue share of brandy has increased year by year in recent years. Between 2016 and 2019, brandy sales and revenue CAGR were-1.1 per cent and 5.8 per cent respectively, mainly due to price contribution to revenue growth. The performance of the brandy business declined due to the epidemic in 2020, but the tonnage price still maintained a good growth (14.8% year-on-year growth). In 2021, driven by medium-to-high single-digit growth in ton prices and sales, brandy sales returned to 76.6%, and revenue returned to 96.7% of the pre-epidemic level.
Investment advice and profit forecast. We estimate that the company's revenue in 2022-2024 will be 43.1 million yuan, and the net return profit will be 5.465 million yuan in 2022-2024, and the EPS forecast in 2022-2024 will be 0.79max 0.95 billion yuan. Considering that the size of the company and the growth rate of revenue performance have outperformed the industry for a long time, it is currently in the cultivation stage of the high-end strategy. With reference to the comparable company's average PE of 29 times in 2023, Changyu A was given 35 times PE in 2023, corresponding to a target price of 33 yuan, giving it a "better than the market" rating for the first time.
Risk tips: raw material price fluctuations, epidemic conditions affect demand, input-output uncertainty.
