2017 results are in line with expectations
Jinfeng Liquor announced its 2017 results, with revenue of 997 million yuan, a decrease of 8.2%, and Guimu's net profit of 55 million yuan, a decrease of 18.0%. The 13.8% decline in revenue in Shanghai dragged down overall revenue performance.
Development trends
The performance of the Shanghai market was sluggish, and the company's growth pressure in 2018 was still strong. The Shanghai market accounted for 73% of the company's rice wine revenue, and was impacted by the following three points in 2017:1) The transformation of stores along streets in suburban counties, lost a large number of middle and low end consumers, and some sales channels disappeared. 2) Organize the dealer team and actively reduce social inventory by 30%. 3) Guyue Longshan, Wu Felt Hat, Shazhou Youhuang, etc. all operate in Shanghai as key markets, and market competition is clearly increasing.
The company's sales channels have room to expand again in 2018, but considering the overall market capacity and competitive pattern, they are still facing greater growth pressure.
Markets outside of the province currently rely mainly on acquired local brands such as Shaoxing Baita and Wuxi Huiquan, but these brands are small in scale, have low popularity, and are not yet capable of large-scale regional expansion. The main brand Shikumen has a good reputation and good taste, but it has been operating locally for a long time, and marketing investment in foreign markets is low. Currently, none of the company's existing brands have the conditions for rapid regional expansion, and there is an urgent need for continuous time and resource investment for development and cultivation.
Operational efficiency has improved. As the share of mid-range and high-end rice wine sales increased, the cost of tons of alcohol dropped by 1.6%, effectively controlling the cost increase. Integrated management, automation, and lean production will continue to be strengthened in 2018 to further improve operational efficiency.
Profit forecasting
Since sales expenses were higher than expected, we lowered the 2018/19e EPS by 5.5%/4.2% from $0.115/0.116 to $0.108/0.111.
Valuation and advice
The company's current stock price corresponds to 4x/4x P/S in 18/19, lowering the target price by 14.3% to 9.0 yuan, mainly due to profit cuts. The neutral rating is maintained, and the target price corresponds to 4.7x/4.6 XP/S in 18/19.
risks
Markets outside the province are unable to achieve major breakthroughs, and revenue is likely to decline further.
