3Q20's performance slightly exceeded our expectations.
The company announced 3Q20 results: 1~3Q20 income 860 million yuan, with a decrease of 31.9%, return to the mother net profit of 86 million yuan, with a decrease of 28.5%. The net profit of homing is slightly higher than we expected, mainly due to the reduction of advertising expenses affected by the epidemic, which led to the sales cost slightly lower than we expected.
Trend of development
The overall recovery of yellow rice wine is slower than that of other types of wine, and we expect that overall consumption will still recover slowly in the fourth quarter, and the annual income of yellow rice wine may be reduced by 32%. In recent years, the overall demand of the yellow rice wine industry has shrunk, which has become a food and beverage wine distribution. Although the catering channels have gradually recovered, the yellow rice wine industry has lagged behind.
The sales revenue of 1~3Q20 's medium and high-grade / ordinary yellow rice wine is 27.56% higher than that of the same period last year, and the decline is even greater, mainly because the consumption of middle and high-end yellow rice wine is concentrated in catering. We expect the epidemic to cause pressure on the upgrading of product structure throughout the year.
There is still a relatively obvious decline in yellow rice wine consumption in various places, and it is slightly better in the province than outside the province, but we think that if there is an obvious repair or wait until next year. The sales revenue of 3Q20 Zhejiang / Shanghai was 35.99% lower than that of the same period last year, with a narrowing decline, and the recovery in the province was slightly faster than that of the whole, especially in Shanghai. We estimate that in order to boost the consumption of yellow rice wine, the company may increase market investment, and the company's sales expense rate may continue the upward period. The company's national investment plan has identified Henan, Anhui, Fujian and other peripheral key markets, we believe that the company's high-end strategy and national investment need to be invested, so after the weakening of the impact of the epidemic, the company's market investment will continue to continue the continuous upward trend of the previous years.
It is suggested that we should pay attention to the positive change of the company, as the leader of the industry still has the possibility of nationalization again. As the first leader in the yellow rice wine industry, the company has led industry changes since 2019, such as the development of non-top products, channel reform dominated by subsidiary No. 1 Red, the integration of industrial parks to improve efficiency, focusing on high-end product lines, and so on. Yellow rice wine is of excellent quality and rich in nutrition, and its low degree is also in line with the current health pursuit of consumers. The company's brand is profound, well-known throughout the country, and the core consumer group is stable, but the current marketing level needs a further breakthrough, we believe that the company's brand value has long-term release space.
Profit forecast and valuation
We keep the profit forecast and target price unchanged at 8.75 yuan, with the target price corresponding to 2020 Universe, the current share price corresponding to 2020, 21, corresponding to 55.9 PG, and the target price remaining 10.3% downside, maintaining a neutral rating.
Risk.
Other kinds of wine to increase market investment to continue to seize the market share of yellow rice wine, if the company's marketing accuracy is not enough, the consumer group may not be able to expand.
