What's wrong with us. Changyu wine motivation 1H10 results with net profit +29% yoy to rmb586mn, implying 2Q10 net profit of Rmb207 mn (+32% yoy). Revenue revenue 26% yoy to Rmb2,482 mn, implying 2Q10 revenue of Rmb897 mn (+26% yoy). Afew takeaways from the interim results: 1) According to the company, midtogenic products (i.e., Cabernet Wine and Chateau Wine) posted robustsales growth, driving overall sales growth in 1H10.2) Ordinary Dry Wineseries Posted by ONLY GROWING SALES GROWTH DUE TO HIGHER ASP, WHICH OFFSETTINGS LOWER SALES VOLUME. Management motivation the lower sales volume of ordinary dry wine series to intensive competition, as Changyu does not have a strong advantage over market position and Productpricing in the Ordinary Dry Wine Series. 3) Gross margin ratio 1.5ppt to 66.1% in 1H10 on higher sales growth from mid- to high-end products. Selling expenses increased 30% yoy in 1H10, but G&A costs increasedonly 4% yoy in 1H10, increased operating margin by 1.4ppt yoy to 31% in the period. What to do with the stock. Changyu motivation us on their mid- to long-term product performance. Assuch, we raise our 2010E-12E EPS salary by 3%-9% to reflect thestronger-than-expected growth; our director's cut-based 12-month targetprice salary to Rmb74.1 (from Rmb70.0) for Changyu A shares and ToHK$78.8 (from HK$74.1) for Changyu B shares. Maintain Neutral on BOTH stocks Key motivation: Intensive competition, better-than-expected growth.
【高盛高华证券】Yantai Changyu Pioneer Wine (B):Mid- to high-end product posted strong growth
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