Incidents:
On March 8, China-Portugal Co., Ltd. announced its 2013 annual report. From January to December 2013, the company's total revenue was 552 million yuan, a year-on-year decrease of 10.81%; net profit attributable to shareholders of listed companies was 15.73 million yuan, an increase of 58.07% over the previous year.
Key points of investment:
Liquor revenue increased 9.56% year-on-year, the expense ratio rose to 67.52%, and operating profit - 140 million.
In 2013, the company's alcohol revenue was 435 million, an increase of 9.56% over the previous year; the gross profit margin was 65.06%, an increase of 4.3 percentage points over 2012. In 2013, the national wine industry produced -14.59%, revenue -9%, and profit -20%; it was not easy for the company to buck the trend and achieve a revenue growth rate of 9%. For this reason, it also invested a lot of resources in building a sales system, causing the main business to lose money. The company's three-item expense ratio increased 14.5 percentage points from 2012 to 67.52%, including sales rate of 34.07% (+8.18%), management expenses rate of 12.87% (+0.65%), and financial expenses rate of 20.58% (+5.68%). The high cost rate resulted in the company's operating profit of -142 million in 13 years. Through the sale of real estate assets, the company contributed about 110 million yuan in non-recurring profit and loss, and net profit after deduction of about 95 million yuan.
The establishment of a fixed code marketing system and the reduction of financial costs will be an opportunity for the company to reverse its decline.
The company announced on January 30 that it plans to improve the marketing system with a fixed increase of no less than 449 million shares of no less than 334 yuan/share, raising no more than 1.5 billion yuan, of which 450 million yuan will repay bank loans and 1.05 billion yuan. The starting point of the company's steady increase is continuing to expand its marketing system. It plans to build about 4,000 marketing outlets covering the country (experience stores, specialty stores, counters, etc.), and plans to set up 7-8 large-scale warehouses and logistics centers and 25-30 small storage and logistics centers in regions such as Northwest China, North China, East China and Southwest China. Furthermore, the fixed increase in capital to repay debts will also greatly reduce the company's current high financial costs. We expect that the implementation of regular projects will, on the one hand, push the company's revenue growth rate to a higher level, and on the other hand, it will also lead to a reduction in the cost rate, thereby achieving a significant improvement in the company's profitability.
Key Assumptions and Investment Suggestions:
Our key assumption for the following expectations is that the company's fixed increase financing plan will be successfully completed in 2014, and that the company will begin implementing the fixed-increase marketing network project and complete the repayment of bank debt in 2014.
The company's revenue is expected to grow at 14.0% and 35.0% in 14/15, net profit growth of 458.2%, net profit of 119.6%, and EPS of 0.07 and 0.15 yuan. Considering the possibility of a rapid upward trend in the company's future profitability, a target price of 4.5 yuan (corresponding to 30 times PE in 15 years) was given a “prudent recommendation” rating.
Risk warning: fixed increase plan cannot be advanced on time, channel construction results are not as good as expected, food safety issues
