Events:

On March 26, Huiquan Beer released its 2013 annual report. From January to December 2013, the company's total operating income was 796 million yuan, an increase of 15.31% over the same period last year; the net profit belonging to shareholders of listed companies was 20.374 million yuan, turning losses into profits.

Main points of investment:

13 years of performance to turn losses into profits, high-end products to promote profitability.

In 2013, the company achieved a net profit of 20.374 million yuan, compared with a net profit of 71.687 million yuan in 2012. For the whole year, the company completed beer sales of 2971 thousand kiloliters, up 1.36 percent from the same period last year; revenue from its main business was 783 million yuan, up 14.33 percent from the same period last year; and the company's 13-year sales gross profit margin was 32.11 percent, an increase of 8.72pct over 12 years. Among them, the market share of medium-and high-grade products has increased, accounting for 50% of the company's annual sales, and the sales of small bottles and canned products account for 46% of the company's annual sales, which has become the main source of annual profits.

"can Chunsheng" new products on the market continue to promote product upgrading, 14 years of profit growth can be expected.

(1) the company focuses on differentiated new products and continues to promote product upgrading. One of the main reasons for doubling the company's net profit in 2013 is that the company continues to promote product upgrades, and the newly developed "500ml cans" is very popular, accounting for 14% of unit sales. At the same time, the company's new "the first pure production line of cans in Fujian Province" produced new products on the market at the end of 13 years, which will continue to promote product upgrading.

(2) Brand plus channel can improve the profitability. On the one hand, the company spreads the brand image through advertising and sponsorship competitions, on the other hand, it continues to implement the car sales model to cultivate customer terminals, which enhances the company's market expansion ability and success rate of goods delivery. In 2013, the revenue of Huiquan beer in Fujian province increased by 12.78% compared with the same period last year, and the external revenue of Fujian province increased by 19.19%. We expect that with the continuous upgrading of the company's products and the continuous expansion of channels, coupled with the positive stimulus brought by the World Cup, the 14-year net profit growth rate will achieve rapid growth.

Key assumptions and investment recommendations:

Our key assumptions for the following expectations are based on the fact that raw material costs in the beer industry remain basically stable and there are no major mergers and acquisitions in the industry. It is estimated that the company's operating income will grow by 10.0% and 10.0% in 14 and 15 years, and net profit will grow by 55.5% and 20.1% respectively. EPS will be 0.13 and 0.15 yuan. Given the accelerated upgrading of the company's products and the positive excitement of the World Cup, it is given a "cautious recommendation" rating.

Risk tips: rising raw material costs and intensified competition in the industry