Main points of investment

On October 23rd, the company released its third quarterly report:

The operating income of the company from January to September and the net profit of shareholders belonging to listed companies were 223 million yuan and 26.39 million yuan respectively, down 18.1% and 28.4% respectively from the same period last year, and 6350 yuan and 2.22 million yuan from July to September, down 22.7% and 67.6% respectively. The net cash flow generated by operating activities from January to September was 31.96 million yuan, down 57.4 percent from the same period last year.

Comment

Third-quarter results continued to decline:

The company's operating income fell 22.7% in the third quarter, slightly deeper than in the second quarter; the net profit of shareholders belonging to listed companies fell 67.6% in the third quarter compared with the same period last year, which was 11 percentage points higher than in the second quarter. Mainly in the management fees and sales rates increased by 2.4% and 1.7% respectively), the decline in profits far exceeded the decline in income, indicating that the business situation in the industry has further deteriorated.

The industry trough is the main reason for the decline, and it is expected that the situation in the fourth quarter is still not optimistic:

According to the industry data, the revenue of the whole industry has fallen by 10.5%, profits have dropped by 19%, and the performance of the leading enterprises in the industry has also dropped sharply. The slump in the industry is due to the impact of imported wine, the crackdown on the three public consumption policies and the decline in macroeconomic growth. From the perspective of imported wine, the number of imports fell 3.2% from January to September compared with the same period last year, stopping the rapid growth in previous years. Market share has also reached an all-time high of 27%, which is expected to be difficult to improve. The strictness and duration of the three public policies have seriously suppressed the consumption of middle and high-end alcohol, and the negative impact on consumption has also reached the extreme. These factors will still affect the development of the industry in the fourth quarter, so the performance in the fourth quarter is not expected to improve; however, in the long run, the industry has reached a trough and may recover in the year after next.

Cash flow has fallen sharply, but it can still cover profits:

The net cash flow of the company's operating activities from January to September was 31.96 million yuan, down 57.4% from the same period last year, but it can be completely covered compared with the net profit of 26.39 million yuan. At the same time, this sharp decline is also due to the high growth in the same period last year.

Firmly optimistic about the development prospects of the wine industry in China:

Although wine is suppressed by the three public policies as well as liquor, there are still great differences: liquor has been fully developed in China, and there is no potential for consumption growth in the future. This decline comes from capacity expansion. On the other hand, wine is in the ascendant in our country, and its consumption is still very low, and it has more attributes of healthy consumption and daily consumption (alkaline drinks are beneficial to health, and foreign countries are often used as table wine and become daily consumer goods of residents). In addition, it is impossible for wine in our country to expand production on a large scale like liquor, because he needs a supporting wine grape base. This requires more than 3 years of tree age cultivation period, better wine requires more than 10 years of grape age, and land supply is also the bottleneck of development.

Expect the company to divest the malt business and make fine wine:

For many years, the gross profit margin of malt business is so low that it is difficult to bring profits and sometimes even net losses for the company. at present, several major domestic beer giants are gradually taking shape, and it will be more difficult to develop malt business in the future. perhaps it is more advantageous to divest the business as soon as possible.

Profit forecast and rating:

Based on the expectation that the situation in the fourth quarter will not improve, we expect the company's EPS to be 0.10,0.15,0.23 yuan in 2013-2015, corresponding to 83,56 and 36 times PE. As the company's performance is lower than market expectations, we believe that the company's fourth-quarter results will hit bottom and give the company a "neutral" rating in the short term. At the same time, we believe that the company's long-term investment opportunities are coming.

Risk Tips:

Higher-than-expected risk of imported wine impact; food safety risk.