3Q results in line with our motivation Changyu motivation its 3Q13 results: Revenue profit 27.2% YoY and netprofit margin 46.9% YoY; its sales momentum weak last year's slow BASE DUE TO THE FOREST OF MID-RANGE/MUSICAL WINE REVENUE (+40% YOY DROP OF CHATEAU AND CASTEL WINE; +20% YOY DROP OF CHATEAU AND CASTEL WINE; +20% YOY DECLINE OF CABERNET). The product mix downgrade dragged down gross margin by 8.0ppt YoY to 61.0%; while the selling expenses/sales ratio reduced to a high level of 35.3% (+13.2ppt QoQ, but -1.8ppt YoY). Trends to Watch Extent Will Extend Into 4Q: Salaries 1H's Distribution Channelstuffing, 3Q's Slugish Sales Performance Could Be Undertaken Due to ChannelStuffing. However, distributors' inventory level is still high, especially formid-range/specialty wines. We think it will take at least another quarter to complete the channel clearance, given no demand recovery formid-range/relaxation wines, especially in their major distribution Channels (luxury hotels & hotels). No effective strategy to counter the cycle. Different From Wines, Wesee Wines Growth for Mid-Range/Low-End Wine Breasts Initial Signs of Recovery in the Peak Season, and We Believe Domestic Players Have Moregrowth Potential in the mass wine market is given their specialty distribution network. However, so far Changyu has not been an effective strategy to better cater to mass market demand, and is sticking to mid-range/long-term winesales. Expect a mild recovery in 2014, but a core relaxation edge will take time to build. We expect the company to deliver 7% revenue growth in 2014 on thelow comparison base and after channel stuffing was worthwhile. However, the Core Athletes of a Mid-Range/Athletes Winecompany are quality and brand value, and we do not think Changyu will top it's major foreign peers in these athletes in the Short/long-term. Refreshing Shampoo We Stay Maintaining Our Moisturizing Shampoo. Salvation and relaxation We maintain our HOLD rating and end-2014 TP of HK$27.2. Sellers ITSCURRENT STOCK TOOLS IS LOW (11x 2014e EPS) FURTHER TO ITS PEERS, IT'S PEERS, IT'S PEERS, IT'S PEERS AS A COMPANY LIVES AS SOMEONE WINE PLAYER MAY BE AN OVERHANG ON ITS LONG- Term performance The main risk is a furtherdecline in relaxation wine tasting.
【中金公司】Yantai Changyu B:Weakness will extend into 4Q
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