3Q18 performance meets expectations
Huaiji Mountain announced its 1~3Q18 performance, with an income of 780 million yuan, an increase of 2.76%, and a net profit of 102 million yuan, an increase of 3.26%, corresponding to 0.20 yuan of EPS, in line with expectations. Gross profit margin in the first three quarters continued to rise steadily to 41.94% compared with the same period last year, mainly due to the improvement of product structure.
Trend of development
The income growth rate of Huaiji Mountain, which is dominated by the internal market in Zhejiang Province, has increased, and we expect it to grow by 8.1% in 18 years, up from 4.8% in 17 years. The upgraded products of mass consumption represented by pure five years have entered a sustained and stable stage, with a growth rate of about 15%, and the 18-year income is expected to reach 560 million yuan, accounting for 41% of the company. The negative impact of the decline of low-grade products and channel adjustment on income has gradually weakened.
Shanghai and Jiangsu, the key markets outside the province, performed well and continued to gain market share. In Shanghai, relying on the sales base and channel system of black felt hats, we expect revenue growth of 1520% in 18 years, compared with the local leader Jinfeng wine industry continues to decline. Jiangsu market revenue has grown by 46% in 17 years, and we expect the growth rate in 18 years to be close to 20%. The key lies in the fact that the company focuses on expanding to northern Jiangsu under the condition of stable revenue in southern Jiangsu. The number of Jiangsu dealers increased by 23 in the first three quarters, and the vast majority are expected to be in northern Jiangsu.
The expansion outside the province adopts the following strategy, the cost pressure is small, but the speed is slow. The company's expansion strategy outside the province is mainly to follow Guyue Longshan, saving the high cost of opening up the market and cultivating category cognition, the cost pressure is relatively small, but the overall expansion pace is slow. The voice of the industry is obvious in 2018. Following the first Yellow Rice Wine Forum held by Spring Sugar, Qiu Sugar will hold related activities again, and the first China Yellow Rice Wine Industry Expo will be held in Shaoxing in November, which will help to accelerate the promotion and cultivation of yellow rice wine categories in China. It also boosts the company's expansion outside the province.
Profit forecast
As a result of a small increase in income, we have raised our forecast for EPS for 18 to 19 by 2.1% to 0.383 from 0.3750.428 to 0.3830.439.
Valuation and suggestion
The company's current share price corresponds to 18Universe 1923 20x Pmax E, maintaining the recommended rating and target price of 12.9 yuan, and corresponding to 18gamer 19 34xPmax E, which has 46% room compared to the current share price.
Risk
If the nationalization of the company is too conservative, the revenue may fall short of expectations.