Key points of investment
The company released its 2013 report, achieving operating income of 552 million yuan and net profit attributable to shareholders of listed companies of 15.73 million yuan, a year-on-year decrease of 10.8% and an increase of 58.1%, respectively; net profit attributable to shareholders of listed companies after deduction was 95 million yuan, compared to -85.49 million yuan in 2012; net cash flow from operating activities was 28.24 million yuan, compared to -62.11 million yuan in 2012.
reviews
Revenue from the wine industry bucked the trend, and operations continued to improve:
The decline in operating income was due to a change in the company's revenue scale from the sale of the Fukang branch; the net profit attributable to shareholders of the listed company exceeded our expectations, mainly because asset disposal revenue exceeded our expectations; the company's finished wine revenue fell short of our previous expectations, indicating that the competitive situation in the domestic wine industry in 2013 was more severe than we anticipated; however, it still bucked the trend and was able to maintain rapid growth under severe industry conditions for 2 years, which also shows that the company's operations are actually improving.
New advances have been made in channel construction
Channel construction has been the company's key shortcoming over the years. In 2013, the company focused on channel construction and fully entered supermarkets in Xinjiang and Beijing. This can effectively raise public awareness of the company's products and lay a solid foundation for long-term development; the company's products gradually entered e-commerce channels and were sold through various Internet platforms such as Taobao, JD, No. 1, and E CITIC. We believe that the cost of the domestic logistics industry is too high. In particular, the price difference between alcohol channels is extremely high, which has affected the promotion and popularization of wine among the public. E-commerce channels can effectively reduce channel costs. The company's refinancing project also mentions the construction of more than 20 logistics and warehousing centers across the country, or preparations for the vigorous development of e-commerce in the future; it is hoped that the company can catch up with the booming development of this new sales format.
Grape liquor may give high hopes
In view of the reality that the overall domestic wine market is limited and the liquor market share is large, the company took a different approach to differentiate liquor - grape liquor brandy, and launched the “Western Chen” series based on the original “Western Flame”; we believe that the market impact caused by the company's entry into the liquor market is small, and it can effectively absorb the company's grape-based wine (about 5 bottles of wine distilled from a bottle of grape and liquor) to reduce the self-injurious behavior of selling high-quality base wine to competitors at low prices in exchange for cash flow.
Divest some agricultural assets and go to battle lightly
Due to historical reasons, the company has some agricultural assets that are very unprofitable or have been losing money. Operating these businesses is contrary to the company's strategy of focusing on wine. In 2013, the company successfully divested the Fukang branch, obtained asset disposal income and cash flow, and also unloaded a loss burden; we think the company will further divest all of its main business assets.
The decline in management expenses and the increase in sales expenses are in line with the company's development situation
The company's management expenses fell from 75.66 million yuan to 71.05 million yuan in 2012, a decrease of 6.1%, indicating that the company's management continued to improve; sales expenses increased from 160 million yuan to 188 million yuan, an increase of 17.4%. This increase reflects the company's focus on marketing work and is necessary for the company's development.
Key Assumptions:
The company successfully completed refinancing in 2014 and began to build marketing outlets. These outlets contributed revenue and profits in 2015 and 2016; refinancing reduced the size of short-term loans and would reduce financing costs; the dilution of earnings per share after refinancing was not considered for the time being.
The catalyst for stock price performance:
The company's refinancing was successfully completed, the problem of high financial expenses was alleviated; a breakthrough was made in marketing construction.
Investment Ratings and Valuations:
The company's revenue for 2014-2016 is predicted to be 616, 740, 903 million yuan, of which the increase is mainly due to increased sales of finished wine products; the estimated 2014-2016 EPS is 0.02, 0.07, and 0.12 yuan, maintaining the company's “buy” rating.
Risk warning:
Financial risk, risk of natural disasters, risk of food safety, and risk of channel construction falling short of expectations.
