1. Incidents

The company released its 2013 annual report, stating that the company achieved revenue of 550 million yuan in the current period, down 10.8% from the same period last year; net profit attributable to shareholders of listed companies was 15.73 million yuan, up 58.1% from the same period last year, and achieved basic earnings per share of 0.019 yuan/share, an increase of 57.7% over the previous year.

2. Our analysis and judgment

(1) The initial effects of the company's transformation are showing

Revenue from finished wine products increased 12.30% in 2013, higher than the 9.56% growth rate in the wine industry. During the reporting period, the company accelerated brand building, actively developed markets, improved management efficiency, strengthened cost control, adjusted its alcohol sales structure, and increased gross margin by 4 percentage points.

Although operating profit was negative due to an increase of 8 and 6 percentage points in the sales expenses ratio and financial expenses ratio, respectively, the company increased its asset disposal efforts and achieved a net profit of 8.8 million yuan.

We believe that if the non-public offering project is successfully implemented, it will further improve the company's marketing and logistics system. On the one hand, it will increase the coverage rate of the company's products at outlets across the country, and achieve a decline in channels and a flattening of sales channels. On the other hand, the company functionally designed these outlets according to various levels such as “experience centers”, “specialty stores”, “counters”, “tobacco hotels”, etc., and built them into display platforms and consumer experience platforms for the company's alcohol products, thereby deepening cooperation with dealers and enhancing the enterprise's own market control and distribution capabilities, thus establishing a well-structured marketing network with a clear hierarchy and division of labor.

(2) Focus on the probability that the company's performance will outperform the industry

In 2013, China's wine industry experienced a cold winter. From January to December, China's wine industry produced a cumulative output of 1,178,300 kiloliters, with a year-on-year growth rate of -14.59%. In terms of monthly production, starting in April, monthly production began to increase negatively year on year, and there was a trend of gradual increase. The absolute value of production rebounded weakly in December, but it was still a sharp decline from the same period last year, and the outlook is hardly optimistic.

3. Investment advice

Pay attention to the changes in the company's transformation from a production center company to a marketing service company, and give it a “careful recommendation” rating; of course, on the premise that the general background of the industry is still unclear, considering last year's performance, we do not anticipate the company's 2014 performance.