Event description

ST 000995.SZ today released its 2010 interim financial report, which is also the first semi-annual report since the major shareholder was changed into private capital Houfeng Investment on February 9 this year: the company achieved 29.19 million yuan in main business income, an increase of 50 percent over the same period last year, and a net profit of-16.03 million yuan, reducing losses by 9.75 million yuan over the same period last year.

After our previous research, we believe that the ownership of Houfeng Investment is a fundamental turning point for the company's development: the company is expected to extricate itself from the chaos of diversified main businesses and backward mechanisms in the past, and stride forward to a strong regional variety with the help of capital and other forces.

We believe that investors who are willing to enjoy high risks and high returns can actively pay attention; considering that the company's current operation is still in the early stages of turning around, the traditional valuation method is not very applicable, so we will not give ratings for the time being, but will pay close attention.

Event comment

First, the income increased significantly compared with the same period last year; the first step to restore self-hematopoietic function

During the reporting period, the company realized 29.19 million yuan in main business income, an increase of 50% over the same period last year. Among them, the revenue of liquor products is 24.1 million yuan, close to the revenue of 28.31 million yuan for the whole of last year. With the change of ownership of the company's major shareholders in February, Shanghai Houfeng Investment Company intervened, and the following four months mainly focused on the construction of internal skills such as personnel, salary, mechanism and sales team; the appearance of the company changed significantly: the liquor sales of 28 million yuan in 2009 basically came from natural volume; therefore, after the mechanism was straightened out, it took only four months to see the effect.

Revenue grew by 40.2% in the first quarter and 71.5% in the second quarter. The second quarter of the liquor industry is a traditional off-season, and the biggest difference compared with the same quarter lies in the product structure: from the gross profit margin, the gross profit is as high as 74% in the first quarter and only 14% in the second quarter, which seems to be back to normal; an important reason is that there are more low-end products sold.

Second, the expense rate is relatively high to be solved.

The management expense rate is as high as 43%, which should be mainly due to the high depreciation caused by underutilization of production capacity. The company currently has 10,000 tons of solid wine production capacity, 20,000 tons of liquid wine production capacity and 10,000 tons of wine production capacity. There are 8 brewing workshops by liquid fermentation, three of which are mainly in use at present. Other facilities, especially the 20, 000-ton liquid brewery, basically stagnated.

The financial expense rate was 4.9%, down 14% from the same period, mainly due to the cancellation interest of a debt restructuring of the company.

Third, cash flow continues to become positive.

The net cash flow of operating activities during the reporting period was 11.95 million, mainly due to the normalization of the company's operations. The company gradually resumes self-hematopoiesis.

Fourth, private capital ownership promotes a major turning point in fundamentals.

After the entry of the new major shareholders, the main work focuses on cleaning up the non-performing assets, tamping the wine-making foundation and improving the operation efficiency. For example, job competition, salary increase, sales team reconstruction; invite well-known wine experts to improve the wine body; work with consulting companies to develop strategies, and so on. The company basically revolves around the main business of liquor.

We believe that investors who are willing to enjoy high risks and high returns can actively pay attention; considering that the company's current operation is still in the early stages of turning around, the traditional valuation method is not very applicable, so we will not give ratings for the time being, but will pay close attention.