3Q17 revenue is lower than expected
Jinfeng Wine Industry announced 1~3Q17 results: operating income was 670 million yuan, down 11.0% from the same period last year; net profit belonging to the parent company was 49 million yuan, down 11.7% from the same period last year, corresponding to earnings per share of 0.09 yuan. Revenue fell 12.2% in the third quarter alone, lower than expected. The stronghold market in Shanghai fell 13.8% in the first three quarters, and the company's brand and channel adjustments continued.
Trend of development
The performance of the Shanghai market is lacklustre, revenue in the fourth quarter is expected to continue to decline, and the growth pressure is still great next year. The Shanghai market is a mature consumption area of yellow rice wine, and the overall growth of the yellow rice wine industry is relatively weak due to population and consumption habits. The Shanghai market accounts for 77.5% of the company's alcohol income in 2016, which has been significantly impacted in three aspects this year: 1) the transformation of urban and suburban counties, the loss of a large number of middle and low-grade consumer groups, and the closure of some sales channels. 2) the price increase will reposition the products, continuously adjust the channel organization, take the initiative to remove inventory to speed up channel sales, and the company's shipments will be affected. 3) Guyue Longshan and black felt hats, including Shazhou Youhuang, increase market investment and constantly seize market share through taste or marketing differentiation. Market competition tends to be fierce, if the company can not quickly adjust in place, restart the promotion of the brand and the continuous cultivation of the market, there is a greater risk that revenue will continue to decline next year.
The overall market outside Shanghai is stable, and the short-term contribution is not obvious. The company's market outside Shanghai is mainly sold in Wuxi Huiquan and Shaoxing Baita. Since the acquisition, there has been less direct intervention in their marketing strategies, more focused on the optimal management of production links and organizational structure, and has not introduced the sales of Jinfeng's main brand at present. It is difficult to make a significant contribution to the company's performance growth in the short term.
Profit forecast
We have lowered our earnings per share forecasts for 2017 and 2018 by 10% and 12% from 0.13 yuan and 0.13 yuan to 0.11 yuan and 0.11 yuan, respectively.
Valuation and suggestion
At present, the company's share price corresponds to 5.8x Pmax S in 2018. We maintained a neutral rating, but lowered the target price by 5.41% to 10.50 yuan, which is 2.23% lower than the current share price, taking into account the valuation switch, the target price corresponds to 19-year 5.5x Pmax S.
Risk
If the brand and channel adjustment can not be completed in time, revenue will continue to decline.
