Event

According to the company's semi-annual report for 2018, H1 achieved business income of 405 million yuan, an increase of 2.81% over the same period last year; net profit of 30 million yuan, up 12.83% over the same period last year; and net profit of 31 million yuan, up 14.37% over the same period last year. Of this total, the operating income of Q2 was 182 million yuan, up 1.46% from the same period last year; the net profit from home was 11 million yuan, down 0.27% from the same period last year; and the net profit from non-return was 13 million yuan, up 7.66% from the same period last year.

Brief comment

Increased sales efforts, a substantial increase in mid-and high-end wine sales

The total operating income of 2018H1 company is 405.62 million yuan, which is + 2.81% compared with the same period last year. The total operating income of 2018Q2 company is 182.36 million yuan, which is + 1.46% compared with the same period last year. The growth of the company's revenue side has stabilized, mainly due to the expansion of sales channels and the increase in sales promotion and the increase in income from medium and high-end products. Specifically: 1. On the product side, mid-and high-end wines contributed the main revenue growth in the first half of the year, including 21.1082 million yuan (+ 9.34%) from high-end wine sales and 100.6995 million yuan (+ 39.34%) from mid-range wine sales. In terms of channels, the company is mainly based on the dealer model, and the sales income of H1 dealers is 377.2826 million yuan (+ 2.88%). At the same time, direct sales models such as Shangchao are developed, and the sales income of H1 merchants is 23.1502 million yuan (+ 32.99%). 3. In the regional market, the income of East China market accounted for 84.76% in the first half of the year, of which the Shanghai sales area increased by 21.57% and the southern sales area increased by 17.88%. At the same time, the company made great efforts to develop the north and northwest sales area, of which the northwest sales area increased by 44.83% compared with the same period last year.

Increase in expenses during the period and active cost control

2018H1 achieved a net profit of 2964 yuan, compared with + 12.83% of the same period last year. The company realized a net profit of 10.88 million yuan,-0.27% compared with the same period last year. In the case of slow cost growth (- 0.50%), the decline in Q2 net profit growth compared with Q1 22.41pct is mainly due to faster fee growth during the period (+ 14.38%). In terms of H1, the rate of expenses during the period is relatively high (+ 0.38pct), and the steady growth of net profit is mainly due to the slower growth at the cost end. Specifically, H1 sales expenses are 114 million yuan (+ 6.95%); management fees are 26.46 million yuan (+ 26.18%); period expenses are 148 million yuan (+ 3.90%), and the increase of various expenses is higher than that of income (+ 2.81%). 2. The operating cost growth rate of H1 company (+ 1.25%) is lower than that of cost growth rate (+ 2.81%). 3. The net profit of H1 in 2017 is only 26.27 million yuan, which is from a low base.

H1 profit increases steadily, Q2 expense investment increases

2018H1's gross profit margin is 56.15%, year-on-year + 0.68pct; net profit margin is 7.31%, year-on-year + 0.65pct. 2018Q2's gross profit margin is 56.72%, year-on-year + 0.86pct, net profit 5.97%, year-on-year-0.10pct. The increase in Q2 gross profit margin is due to the fact that the company's revenue growth (+ 1.46%) is faster than the cost growth rate (- 0.5%). During the Q2 period, the expense rate is year-on-year + 4.36pct, resulting in a decline in net profit margin. The increase in H1 gross profit margin is due to the fact that the company's revenue growth (+ 2.81%) is faster than the cost growth rate (+ 1.25%). Specifically, the revenue of mid-end and high-end products of H1 company increased by 39.34% and 9.03% respectively, and the product structure changed significantly. The proportion of middle and high-end products reached 30.42% (+ 6.57pct), leading to the rise of the company's overall gross profit margin. The main reasons for the rise of H1 net interest rate are as follows: 1. The rise of gross profit margin leads to net profit margin. 2. There are differences between the accounting of the company's Australian subsidiaries and those in China, which leads to the H1 comprehensive tax rate year-on-year-5.32pct.

Vertical integration of the whole industry chain, steadily expanding sales channels

The company has a relatively complete industrial chain advantage, the company raised funds to build "Australia 60,000 tons of high-quality grape wine processing project", the formation of "wine grape planting-wine production-packaging printing-logistics distribution-sales" vertical integrated industrial chain. In terms of channels, the company introduces excellent dealers through non-public offerings to make dealers become indirect shareholders of Weilong shares, stabilize cooperative relations, and expand direct sales models such as Shang Chao, e-commerce, group buying and so on. In addition, the company pays close attention to the five major projects "Thousand Merchants, Wandian, Longwang, Boss and Banquet Project" to cultivate core consumer groups. While strengthening the East China market, the company develops the north and northwest sales area through the construction of fund-raising and marketing network, and improves the marketing network covering the whole country.

Profit forecast

The overall growth of the company H1 is steady, while the performance of Q2 has declined slightly. The company actively optimizes the product structure and continues to make efforts in the construction of sales system and channels. It is estimated that the net profit of the company from 2018 to 2020 is 2.49,3.00 and 365 million yuan respectively, the corresponding EPS is 0.31,0.36,0.41,0.48 yuan per share, and the corresponding Pmax E is 44.32,38.17,33.51 and 28.63 times respectively. It is recommended to pay attention to and maintain the "overweight" rating.

Risk hint

The wine market fluctuates greatly; the supply of raw materials is affected by external forces; and the brand management is poor.