Incidents:

According to the company's 2012 annual report, it achieved a total revenue of 619 million yuan in 2012 (a year-on-year increase of 15.26%), and net profit attributable to shareholders of listed companies was 9.95 million yuan, turning a loss into a profit, EPS of 0.01 yuan. No dividends. Investment highlights:

The content of the 12-year annual report shows that the main business (mainly wine) was profitable in the fourth quarter. The fourth quarter achieved revenue of 338 million yuan, an increase of 111% over the previous year, and realized operating profit of 109 million yuan. Operating profit after excluding asset impairment and net investment income was 48.24 million yuan. The profit contribution of 31.92 million yuan (excluding taxes) from other business income was mainly the value-added portion of the sale of Room 1A property on the 1st floor of Xintian International Building, No. 450 Fushan Road, Shanghai for 54.25 million yuan. The main business segment (wine industry and agriculture only) achieved a net operating profit of 16.32 million yuan in the fourth quarter. In addition to the 111% increase in revenue, the main business profit in the fourth quarter was also due to the fact that the absolute amount of marketing expenses and management expenses fell 26.3% and 41.05%, respectively, year-on-year.

There are clear signs of improvement in wine sales. Among them, finished wine products increased 28% year over year throughout the year, and a large increase is expected in the fourth quarter.

The company achieved revenue of 619 million yuan throughout the year, of which the wine industry revenue was 397 million yuan, accounting for 64.17% of revenue, with a gross margin of 60.76%; agricultural revenue was 139 million yuan, accounting for 22.45%, with a gross margin of only 6.72%, so the main observation was the company's wine industry revenue.

The annual revenue of the wine industry was 397 million yuan, a year-on-year decrease of 14.29%, while gross margin increased by 12.16 percentage points to 60.76%, which indicates that the company has drastically reduced sales of raw sake.

It is estimated that 269 million yuan of wine sold in the second half of the year (gross profit ratio of 65%) will be basically finished wine, and more than 90% of the 397 million yuan of wine sold throughout the year will be finished wine. Finished wine products increased 28% year over year for the year.

Marketing improvements have been obvious, creating key markets, reducing advertising costs and increasing personnel.

The company has comprehensively established a management concept with marketing services as the core, attaches importance to various types of group purchases and cooperation, and carries out scientific planning in areas such as accelerating the development of dealers, building key regions, and refining regional management. The principle of “strengthening key markets” is proposed in the dealer development plan, which requires the establishment of a sense of serving the market, serving the frontline, and serving dealers. At the same time, by further building key regions, the company shapes model markets, and highlights key regions. Reduce advertising investment and increase personnel investment. In 2012, advertising expenses fell 45% year on year, staff wages increased 75% year on year, and the number of sales staff also increased from 212 in 2011 to 332 in 2012.

Growth was evident in the Xinjiang and East China regions. The sales volume and sales amount in the reporting period in the Xinjiang region and the East China region both hit new highs since the company was founded. In 2012, Xinjiang increased 51.01% year on year to more than 81 million, while East China increased 166.44% year on year to over 96 million.

Management expenses have been drastically reduced, indicating the company's determination to reform within the company.

In 2012, the company's management expenses fell from 105 million yuan in 2011 to 756 million yuan, a year-on-year decrease of 28%, of which employee wages fell 34%.

The actual controller, CITIC Group, has increased its procurement exponentially, and support has been strong.

In 2011 and 2012, the amount of alcohol purchased by CITIC Group from the company was 10.46 million yuan and 21.2 million yuan. In 2013, the company plans to sell no more than 50 million yuan of wine to China CITIC Group Co., Ltd. and its subsidiaries, indicating that CITIC Group is making great efforts.

The return of asset impairment, net investment income, and non-operating income helped the company turn a loss into a profit in 2012. In the fourth quarter of 2012, asset impairment losses returned to 16.89 million yuan; net investment income was 43.69 million yuan, mainly from the sale of Shanghai CITIC Guoan Wine Co., Ltd., a wholly-owned subsidiary; non-operating income was 22.74 million yuan, mainly government subsidies.

Profit forecasts.

The company's fundamentals can basically achieve profit. On the one hand, the company's revenue has increased significantly, and on the other hand, the effects of cost control and cost investment have improved markedly, so it can be basically judged that the company's fundamentals are gradually improving. The company's revenue for 2013-15 is estimated to be 734 million yuan, 912 million yuan, and 1,144 million yuan, achieving net profit attributable to shareholders of listed companies of 0.23 million yuan, 82 million yuan, and 152 million yuan. The corresponding EPS is 0.03 yuan, 0.10 yuan, and 0.19 yuan. The corresponding PE was 209 times, 58 times, and 31 times, maintaining the “increase in holdings” rating.

Key Concerns

Stock Price Catalyst (Positive): Sales Improvement Exceeded Expectations

Risk warning (negative): Signs of improved sales have not continued. The company guarantees 344 million yuan to Xinjiang Production and Construction Corps Investment Co., Ltd.