Incident: We recently conducted a follow-up study on the company.
Key points of investment
The industrial strategy is upgraded, and there is a possibility of outbound mergers and acquisitions. 1) Sale of assets with sufficient book capital. From 2013 to 2015, the company sold the remaining shares of Fukang Branch, Xintian Real Estate's remaining shares and distilled alcohol assets, etc., respectively. This move will optimize the company's industrial layout. After the sale of assets, the company had sufficient book capital. Judging from the quarterly report, it is estimated that it currently holds 7-800 million dollars in cash. We speculate that the company may also use various methods of financing in the future to prepare for outbound mergers and acquisitions. 2) Set up M&A funds with strong ability to extend mergers and acquisitions. In July 2015, the company and the related party China Africa Credit Bank (Shanghai) Equity Investment Management Co., Ltd. jointly initiated the establishment of the Ruidian (Shanghai) Equity Investment Fund Partnership (Limited Partnership). We determined that the company might expand the industrial chain in the consumer goods sector and create new business growth points. 3) Holding 12% of the shares in Jiuding Agricultural Products Company is expected to bring good investment returns. Jiuding Agricultural Products Company is doing well. In 2015, it achieved revenue and net profit of 420 million and 0.4 billion yuan respectively. After completion of all projects, it will become the largest one-stop service agricultural products wholesale trading market in the northwest. In the future, it may strengthen the extension of the agricultural products industry chain and promote the construction of the entire industry chain system. Jiuding is expected to bring good investment returns to the company.
Raw materials are the core advantage of the wine business. The impact of the rectification campaign is nearing its end, and marketing ability is a shortcoming. 1) “Ecology of origin” is the strategic support point, and the base of controllable raw materials is sufficient.
The raw material base of China and Portugal is at the same latitude as Bordeaux, France. It has natural ecological advantages and unique climatic conditions. Quality control processes such as planting, raw materials, and brewing are strict. The company has 50,000 mu of controlled grape growing base, with obvious advantages in raw materials. 2) The brand has a certain level of popularity. Terminal demand is nearing its end due to the influence of the rectification campaign, but marketing capacity is lacking, and there is plenty of room for improvement. The company's product composition consists of high and low grade Western Shadi, Nia and Xintian. The product line is complete, which can meet the needs of different customers, and the brand has a certain level of popularity. Affected by the rectification campaign, the group buying business shrank, and the company's revenue continued to decline in 13-15. We judge that terminal demand stabilized in 2016. However, the company's marketing ability is a shortcoming, and the market response is slow. This is also a common shortcoming of wine companies in northwest China, and there is plenty of room for improvement.
Profit forecasts and investment recommendations. The EPS for 16-18 is expected to be -0.01, 0.00, and 0.01 yuan respectively. The short-term valuation of the main business is too high. The main focus is potential outreach mergers and acquisitions, but since the direction is not yet clear, we are not rating for the time being.
Risk warning: food safety risks, business expansion falling short of expectations, industry competition intensifying.
