Investment suggestion

As the company faces growth pressure in both inside and outside the province, and there is no further effective expansion outside the province, the target price is lowered to 7.42 yuan and the rating is downgraded to neutral. The reasons are as follows:

The market in the province is facing the pressure of continuous decline in low-grade wine. Sales of low-end wines fell 20.2 per cent to 52000 tonnes in 2018, but still accounted for 47 per cent. Low-grade wine is mainly consumed in the province, and the demand for low-grade wine will continue to weaken due to the upgrading of population and consumption.

The market expansion outside Zhejiang and Shanghai is weak, and there is a lack of growth points in the short term. In 2018, the market revenue outside Zhejiang and Shanghai increased by only 0.2%, accounting for 18.7% of the company's revenue did not grow compared with the same period last year, and the volume and growth outside Zhejiang and Shanghai were insufficient. As the company adopts a more conservative channel expansion strategy, we believe that the short-term income growth outside Zhejiang and Shanghai is difficult to increase, and even has the risk of decline.

The urgent task of the industry is to find the growth point of quantity, and the growth of volume mainly comes from the market outside Jiangsu, Zhejiang and Shanghai, but the market investment of the industry as a whole is insufficient. It needs the active cultivation and guidance of enterprises, the promotion of channel layout and the promotion of innovation at the product level, in order to promote the amplification of consumption atmosphere and demand. Marginal improvements have been made, such as Guyue Longshan's continuous advertising and channel investment, but the overall investment in the industry is still insufficient.

What is the biggest difference between us and the market? The production and operation side of the company still has high efficiency.

Potential catalyst: consumption escalation continues.

Profit forecast and valuation

Downgrade 1920 EPS 32.2% 26.0/28.0xPE 44.8% to 0.285max 0.265 yuan, target price 41% to 7.42 yuan, current price corresponding to 19pm 20 30.7/33.1xPE, target price 15% downside, downgrade to neutral.

Risk

If the market outside the province cannot be further expanded, revenue will face the risk of a sharp decline.