1H19 revenue is slightly better than expected
Huaiji Mountain announced its 1H19 results, with an income of 554 million yuan, a decrease of 5.18%, and a net profit of 67 million yuan, a decrease of 20.06%. Revenue in the first half of the year was slightly better than expected, mainly due to a smaller-than-expected decline in the second quarter of mid-and high-end wine products. We expect revenue to decline-6.6% for the full year.
Trend of development
The overall demand for yellow rice wine is relatively weak, with obvious performance in the main selling areas of common wine and yellow rice wine. The company's ordinary yellow rice wine revenue fell 12% in the first half of the year, while only 42% of the company's revenue was growing in Shanghai in the first half, with declines to varying degrees in other sales regions, including a 12% drop in revenue from Zhejiang, the stronghold. Industry leader Guyue Longshan also shows a similar income development trend, reflecting the impact of the aging population structure and slowing macroeconomic growth on consumption, and the overall demand for yellow rice wine is relatively weak.
The product structure continues to upgrade proactively. The company continues to focus on core products and eliminate low-end products, including the launch of Master Orchid Pavilion priced at 1000 yuan, with a view to further enhancing brand value and revenue structure.
The company's overall development strategy is still relatively conservative, and the revenue scale urgently needs a new growth area, otherwise a single product structure upgrade will not be possible for a long time. Compared with the industry leader Guyue Longshan, the company is obviously inferior in the intensity of marketing expenses and the progress of expansion outside the province. At present, the pace of national expansion of the company and industry is relatively slow, and it is facing the pressure of continuous revenue decline in mature markets, so it is difficult to sustain growth only by relying on the structural upgrading of existing markets. How to promote regional expansion through yellow rice wine category differentiation and marketing mode innovation is not only a problem for the company, but also an urgent problem to be solved in the industry.
Profit forecast and valuation
As a result of raising the revenue forecast for medium and high-end wines, the target price is increased by 8.1% to 8.02 yuan, corresponding to 2019 28.4x/27.0x 28.4x/27.0x E, and the current price corresponds to 2019 29.6x/27.9x 20. The target price has 3.4% downward space, and the neutral rating is maintained.
Risk
If the company's marketing continues to be conservative, it will be difficult for revenue to grow steadily.