1H17 performance is lower than expected.
Changyu An announced 1H17 results: operating income was 2.77 billion yuan, up 0.5% from the same period last year; net profit belonging to the parent company was 670 million yuan, down 3.6% from the same period last year, corresponding to 0.98 yuan per share. 1H17's revenue and profits are slightly lower than expected, and the company is still in a period of structural adjustment between product grade and domestic / imported wine brand business.
Trend of development
The pressure for wine growth continues unabated, with 1H17 revenue down 1.2%, significantly lower than the 11% increase in imported wine, indicating that the company's revenue continues to be under competitive pressure from imported wine, gross profit margin continues to decline by 0.4%, and the product structure is adjusted downwards. But looking to the future, with the increase of the proportion of mid-and low-end wine revenue and the integration of imported wine resources, the competitiveness of revenue in mid-and low-end wines will gradually increase.
The company's imported wine layout is worth looking forward to, and continue to layout upstream brands and base wine resources. In addition to Aiou Group, the continued layout of high-quality wine resources in Chile will bring Changyu a longer-term cost competitive advantage. The company will gradually transition from a single wine brand enterprise absolutely dominated by the domestic Changyu brand to the development model of global brand integration operation. Combined with the huge market opportunities in China, the company's current single brand risk will continue to reduce. The advantages of multi-brand and multi-product portfolio will gradually become apparent.
The company continues to increase brand investment, reduce channel promotion expenditure, reduce staff to increase efficiency, and build core distributors. It can be seen that Changyu is building a wine leader with high-quality products and global brands as its core competitiveness. Short-term revenue and profit adjustment is not afraid, the company's brand competitiveness and the ability to cultivate products still exist, the company deserves continuous attention.
Profit forecast
We cut our earnings per share forecasts for 2017 and 2018 by 4.0 per cent and 4.5 per cent from RMB1.46 and Rmb1.53 respectively to Rmb1.40 and Rmb1.46 respectively.
Valuation and suggestion
At present, the company's share price is 24.6 times that of the 2018 Pdebar E. We maintain a neutral rating and a target price of 36.50 yuan, which is 1.53% higher than the current share price. The target price corresponds to the 18-year 25x Pamp E. Changyu B maintains the recommended rating, with a target price of HK $33, corresponding to the 1819x PPpace E.
Risk.
The development speed of alcohol chain is faster than expected, and there is great uncertainty about the short-term impact of imported wine.