Company trends

Maintain neutrality

The current situation of the company

We recently conducted a survey of the company, and the company said:

1. The product structure continues to be actively optimized, and the quality is still evolving. In 2019, the company integrated the products with high coincidence degree of Huaiji Mountain series, and now there are about 200. in terms of product structure, the company insists on taking "pure five years" as the main product, and "Huaiji Mountain 1743" as a large upgrade item, and this year launched the ultra-high-end price "Master Lanting" as a high-end benchmarking product. The company said that the direction of product quality improvement in the future is softer entrance and more comfortable after drinking.

two。 The company's market development strategy is to consolidate the base markets of Zhejiang, Shanghai and Jiangsu, and to expand Anhui, Fujian and other potential provinces and regions in a planned way. At this stage, the focus of development outside the province is still Shanghai, mainly relying on the refreshing yellow rice wine "felt hat" brand promotion.

3. In 2019, the company integrated the dealers and merged some small dealers with high coincidence degree. At present, there is a hierarchical distribution mode both inside and outside the province, and the company pays more attention to the dealer service, and there is a large investment in marketing expenses in this area.

Comment

We believe that the upgrading of the product structure actively promoted by the company will lead to a slow rise in gross profit margin. We expect sales of mid-and high-end rice wine to grow by 1% and 2% year-on-year, respectively, while low-end rice wine will decline by 10% in 2019. However, yellow rice wine lacks a large benchmarking item at the high-end price, which leads to the lower end of the overall positioning and the slow upgrading of the structure.

The overall scale of yellow rice wine is too small, we believe that the company still needs to strengthen market investment, focusing on expanding the consumer population and application scenarios, one-sided pursuit of product structure upgrading is difficult to substantially boost fundamentals. The company said that the overall size of yellow rice wine is only 20 billion yuan, accounting for about 2% of the wine scale, and the market is highly concentrated in Jiangsu, Zhejiang and Shanghai, and the rice wine consumer group still needs to be continuously cultivated. Taking into account the company's cost control and profit pursuit, we expect the company's sales expense rate to remain at 12% in 2019, which is lower than the sales expense rate of Guyue Longshan, the main competitor. We believe that the company's market investment still needs to be strengthened.

Valuation proposal

Because we are more optimistic about the upgrading of the company structure, we raise the 20-year profit forecast of 20.9% in 2019 to 151.5 million yuan, and introduce a profit forecast of 162 million yuan in 2021.

As a result of the increase in the earnings forecast, we raised our target price by 7.2% to 8.6 yuan, corresponding to the 2019-20-21 year 28.7ax 26.9amp 26.1x P Accord E, and the current share price corresponds to the 2019-20-21 year 29pm 27.5x P Accord E. the target price has 1.5% downside space and maintains a neutral rating.

Risk.

If the yellow rice wine industry further tightens its investment in marketing, the market may shrink further.