Investment highlights
For the first time, Huiquan Beer (600573) was covered to outperform the industry. The target price was 14.00 yuan. Based on the price-earnings ratio method, the 2024/25 valuation multiplier was given 50/38 times. The company ushered in new opportunities under the “reshaping and revitalization” strategy and the reform of the majority shareholder Yanjing Beer. The reasons are as follows:
The company is in the Fujian beer market. Under the leadership of the leader, its structural upgrade is leading the country. The Fujian market is characterized by large capacity and leading consumption power. Volume: In 2021, Fujian beer production/per capita consumption reached 1.661 million tons (4.7% of the country) /40 liters (leading the country's 25 liters); Price: Fujian beer consumption level is about 2 yuan ahead of the national price segment. Among them, we estimate that the annual beer consumption in regions with high consumption levels such as Fuzhou and Quanzhou may reach the level of 20-30 thousand tons. Both account for more than 15% of the province's consumption. Competition pattern: Fujian is one of the first markets for foreign brands to enter. As leaders actively integrate regional brands and gradually form Budweiser leaders, Tsing Beer and Huiquan followed the pattern. In 2020, Huiquan accounted for about 15% of the Fujian market. Competition was dominated by healthy high-end and efficiency integration trends. Fujian is leading the country in structural upgrading. We estimate that in 2019 (under normal conditions without the impact of the epidemic), it accounted for 50% of ready-to-drink channels and more than 50% of mid-range beers.
Company development highlight 1: Combining multiple initiatives to improve short-term profitability. In 2022, the parent company Yanjing Brewery implemented the “Revival Yanjing” strategy and implemented measures such as contractual management and loss reduction and efficiency improvement for subsidiaries. The company's ROE of 3.3% is low in the industry. Among them, the reduction in the company's management expenses ratio (5.67% in 2022) and the increase in capacity utilization (27.6% in 2022) may be potential future improvement points.
Highlights of the company's development 2: Structural upgrades are gaining strength, and there are opportunities for high-end development. The company's tonne alcohol price and gross margin are at the lowest level in the industry (ASP 2773 yuan/ton in 2022, gross profit margin 27%), and there is plenty of room for subsequent high-end improvements. The company has high-end conditions in both product and channel dimensions. Product side: The company uses “one wheat” and “small fresh” of 8-10 yuan as a starting point, focusing on the characteristics of southern Fujian. The products meet the characteristics of small bottles and high concentration in the high-end market of Fujian beer. Channel side: After being adjusted during the epidemic, the company's in-depth distribution model in the province can support upgrades in the Yanjing U8 release stage. In 2021, the company's catering channel accounted for only 26%, and the subsequent increase in the proportion of catering channels may be the direction of upgrading.
What is our biggest difference from the market? We believe that the reform of Yanjing Brewery, the majority shareholder, is progressing steadily. The company is facing opportunities for transformation and innovation from the top down, and improving profitability through efficiency improvements and high-end technology. At the same time, the company's profit side is expected to unleash flexibility under the double benefits of short-term demand recovery and falling costs.
Potential catalysts: The parent company's efficiency improvement signals drive profitability improvement, and structural upgrades accelerate high-end transformation.
Profit forecasting and valuation
We expect the company's EPS for 2024-25 to be 0.28/0.37 yuan, and the CAGR is 32%, respectively. We will give a target price of 14.00 yuan, corresponding to 50/38 times P/E in 2024/25. The current stock price corresponds to 44/34x P/E in 2024/25, which has 12.9% upside compared to the target price, giving it an outperforming industry rating.
risks
High-end competition has intensified, raw material costs have fluctuated, profits have fallen short of expectations, and the consumption scenario has been affected by the epidemic.