1H20 performance is slightly lower than we expected.
The company's 1H20 income was 453 million yuan, year-on-year-18.22%, and the mother net profit was 48 million yuan,-28.7% year-on-year; of which 2Q20 income was 197 million yuan,-8.65% year-on-year, and home net profit was 14 million yuan, + 1079% year-on-year. The company's performance is slightly lower than we expected, mainly because the moving sales of yellow rice wine in the catering channel has not fully recovered.
Trend of development
The epidemic affects the upgrading process of the product structure, and we expect a double-digit decline in sales for the whole year.
As the consumption of yellow rice wine is concentrated in catering, 1Q20 is greatly affected by the epidemic. Since the second quarter, food and beverage channels in Jiangsu, Zhejiang and Shanghai have recovered quickly, superimposed channel replenishment demand, and the company's sales have improved. Although the company has increased the channel expansion of "Huaiji Mountain 1743" and "Master Lanting", the revenue of high-end yellow rice wine in 1H20 affected by the epidemic is-18.27% year-on-year, which is larger than that of ordinary yellow rice wine. Gross profit margin is mainly due to cost reduction and year-on-year + 0.63ppt. We expect the epidemic to put pressure on structural upgrading throughout the year, which will lead to a slow increase in gross profit margins from 2021. However, due to the lack of high-end single products of yellow rice wine, the room for further upgrading of the structure is limited. We expect that after 4Q20 enters the traditional peak season, there will be a more obvious consumption trend, with year-on-year sales of high-end / ordinary yellow rice wine or 11% year-on-year sales of high-end / ordinary yellow rice wine.
If the company wants to expand the consumer group and scale, it still depends on strengthening the market investment, and it is expected that the sales expense rate will increase slightly year by year in the next three years. Through technical research, the company has improved the pleasure of drinking yellow rice wine, and developed new products such as "Lanting National Tide, Kaitan Wine, sparkling Wine" and other new products, which we think are intended to expand the new consumer group of younger people. However, at present, the overall consumption atmosphere of yellow rice wine is lack, we believe that the company needs to increase market investment, expand demand through innovation and accurate marketing, broaden the consumption scene of yellow rice wine, and increase channel profits in order to expand the scale.
Since 2020, the company has carried out more online brand promotion activities with the help of online media, and the 1H20 sales expense rate is from + 1.85ppt to 12.3% compared with the same period last year. We expect the company to continue to increase its marketing expenses. In 2020, the company's sales expense rate will be + 0.84/0.9ppt year-on-year.
The market in the province continues to decline, and Shanghai may be the main increase in income in the future. The company is based on the internal market in Zhejiang Province and takes Shanghai as the key development market outside the province. The decline in Zhejiang market revenue of 1H20 Company is greater than that of the whole, and the revenue in Shanghai area only drops by 3.2%. This shows that the market of "black felt hat" for refreshing yellow rice wine is advancing smoothly. Market revenue in the province has stopped growing since 2018, and we expect demand in Zhejiang province to remain weak, with the exception of Shanghai, where revenue may grow slightly. However, due to the overall shrinking sales of yellow rice wine and fierce competition from other types of wine, channel expansion and further consumer cultivation are still needed.
Profit forecast and valuation
Due to the slower-than-expected recovery of the company's yellow rice wine sales, we lowered the 2020x21 yellow rice wine sales forecast and the 2020max 21 profit forecast for 2020max 11.6% to 123pm 133 million yuan. Due to the upward move of the valuation center, we maintain the target price of 8.6 yuan, corresponding to the 2020 / 21 35max 32x Pmax E, and the current stock price corresponds to 2020Compact 21 36x Pmax E. the current stock price has 2.6% downward space relative to the target price and maintains a neutral rating.
Risk.
If the impact of the epidemic persists, the recovery of mobile sales will be slower than expected; if revenue in Zhejiang, a niche market, continues to decline, there will also be pressure on expansion outside the province.