1H17 revenue is lower than expected

Jinfeng Wine Industry announced 1H17 results: operating income was 430 million yuan, down 10.4% from the same period last year; net profit belonging to the parent company was 320 million yuan, down 8.1% from the same period last year, corresponding to earnings per share of 0.06 yuan. The lower-than-expected revenue was mainly due to Jinfeng's decline of nearly 18% in the Shanghai market. The growth of the market outside the province still depends on the contribution of the acquired Wuxi Zhentai and Shaoxing Baita, while the expansion of the Jinfeng brand outside the province has not improved.

Trend of development

The decline in revenue is mainly caused by the Shanghai market clearing food and beverage stalls and removing inventory through channels, and the decline is expected to narrow significantly in the second half of the year. 1) Shanghai began to increase the renovation of catering places and mobile stalls in the second half of 16 years, and continued to promote the transformation of shantytowns and old residential areas, and the catering consumption demand of yellow rice wine was suppressed. As a real estate brand, the penetration of catering channels is more than 50%, which has a great negative impact. 2) actively reduce channel inventory, improve dealer turnover and profit space, and clean up unqualified dealers at the same time. 3) taking into account the impact of the year-on-year base and channel adjustment, the decline in the second half of the year will be significantly narrowed, and the revenue of the Jinfeng brand is expected to decline by about 11% for the whole year.

As a mature consumption area of yellow rice wine, the overall demand growth in Shanghai market is weak due to the pressure of population growth and health factors. At the same time, Guyue Longshan, black felt hat and other increased investment in Shanghai, competition intensified, the company's growth pressure is greater, is not expected to decline or slightly increase for 18 years.

The cost investment is cautious, and the expansion outside the province is slow. The Jinfeng brand is still limited to the Shanghai area, while Huiquan and Baita are also mainly sold in the local market, and it is difficult to see a significant improvement in the expansion of other markets in the short term.

Profit forecast

We have lowered our earnings per share forecasts for 2017 and 2018 by 6% and 11% from 0.14 yuan and 0.15 yuan to 0.13 yuan and 0.13 yuan, respectively.

Valuation and suggestion

At present, the company's share price corresponds to 5.3x Ppace S, and we maintain a neutral rating, but cut the target price by 9.76% to 11.10 yuan, which is 3.16% upside from the current share price.

The target price corresponds to 18-year 5.5x PMac S.

Risk.

Competition in the Shanghai market is further intensified, and the company's revenue is likely to continue to decline.