Incident: On March 21, 2023, the company disclosed its 2022 financial report, achieving annual revenue of 6.056 billion yuan, +21.86% year on year, net profit of 1,685 million yuan, +35.31% year on year; of these, 22Q4 achieved revenue of 1,439 billion yuan, +5.62% year on year, and Guimo's net profit of 485 million yuan, +75.87% year on year.

22Q4 The company's sales revenue was 1,138 million yuan, a year-on-year decrease of 31.91%, and contract debt was 298 million yuan at the end of the period, a decrease of 64 million yuan over the previous period. As of the end of 22Q4, the number of company dealers was 2,158, of which 1835/323 were outside the province/within the province respectively, a net increase of 50 households and a decrease of 144 respectively from the end of 21Q4.

The product structure has been upgraded, and expansion outside the province continues to advance. By product, 22Q4's high-end liquor revenue was 1,125 million yuan, an increase of 8.17% over the previous year, and the revenue of ordinary alcohol was 216 million yuan, a decrease of 3.22% over the previous year. The share of high-end wine increased by 1.57 pct in mid-'22. The company focused on focusing on the core single product tasting, being willing to taste the new fifth generation in '22. In September '22, the invoicing price of the taste increased by 20 yuan. In September '22, the wholesale price of the product remained stable and gradually sold. By channel, wholesale agency revenue was 1,217 billion yuan, up 9.32% year on year, and e-commerce sales were 124 million yuan, down 17.24% year on year. By region, revenue within and outside Sichuan Province for the year 22 was 16.12/4,045 billion yuan respectively, +13.48%/+28.12% over the same period last year, accounting for 28.49%/71.51% of revenue respectively.

Expenses were drastically reduced, and the 22Q4 performance was impressive. 22Q4 The company's gross margin fell 1.31pct to 75.75%, and the sales expense ratio and management expense ratio dropped sharply by 6.19pct and 11.15pct to 13.49% and 5.05% respectively. The main reason was that the company improved cost allocation efficiency, leaned from the B end to the C end, and strengthened brand promotion and end consumer development work. 22Q4 Gimu's net profit increased sharply by 75.87%, and the net profit margin of Gumu increased sharply by 13.48pct to 33.74%.

Evolve multi-brand matrix strategies and strengthen marketing. In 2022, the company evolved the “dual brand strategy” into a “multi-brand matrix strategy”. Based on the “old wine+culture” and Tuopai's “awakening+revitalization” strategy, the company established a joint venture to establish Guizhou Yelang Ancient Winery Co., Ltd. to lay out the sauce business with the ancient Yelang brand and strengthen brand building work in all aspects. According to the documents of Sichuan Tuopai Shede Marketing Company, starting from April 1, '23, the price of the Taste Shede series (fifth generation, fourth generation, essence edition, and festival pack) terminals was raised by 20 yuan/bottle, increasing prices during the off-season to enhance product strength. Furthermore, during the “14th Five-Year Plan” period, Yelangu will achieve 20,000 tons of production capacity and 100,000 tons of energy storage, strive to achieve the target of 10 billion dollars in ten years, and enter the first Chinese soy wine camp. It is expected to provide strong performance support for Shede in the medium to long term.

Investment suggestions: The company adheres to the “old wine, multi-brand matrix, rejuvenation and internationalization” strategy, strengthens the business department operation and management model of the six major business segments of “Shede, Tuopai, Old Wine, VIP, Internet, International Business”, and creates offensive, value-based marketing and science and innovation organizations. It is expected that the company will continue to enjoy the dividends of upgrading and expanding sub-high-end wine in the future. It is optimistic about the company's medium- to long-term performance space under national expansion. According to the company's equity incentive target for October '22, it will strive to achieve the target of 10 billion dollars in '24. We expect the company's net profit attributable to the parent in 2023-2025 to be 21.2/26.7/3.39 billion yuan respectively, and the corresponding EPS is 6.36/8.03/10.19 yuan respectively. The current stock price corresponding to PE is 30/24/19 times respectively, maintaining the “recommended” rating.

Risk warning: The new product promotion process is slowing down, and the risk of food quality accidents.