The current situation of the company

Recently, we went to the headquarters of Shaoxing company to conduct research and had an in-depth exchange and discussion with the management on product structure, national expansion, marketing strategy and other issues.

Comment

Focus on the core items, product structure upgrading is still on the way. The company is aware of the problem of too much SKU and has shrunk about 80 SKU this year. The company said that five years / ten years / clear alcohol are more than 100 million series, in the future, efforts will be made to focus on the core single products, in order to promote the continuous improvement of product structure. The revenue share of the company's middle and high-end products (more than 3 years' products) is steadily increasing year by year, driving the growth of gross profit margin. We are optimistic about the change of the company's product structure, and we predict that the increase in the proportion of middle and high-end products may give the company a profit boost.

The continuous expansion of the whole country may be a focus for the core of the future. We believe that it is difficult to increase the volume of mature markets in Jiangsu, Zhejiang and Shanghai, and the upgrading of product structure may be the driving force for the future growth of these markets, while the growth point of the company is mainly outside Jiangsu, Zhejiang and Shanghai, and the company intends to be nationalized at present.

Category and brand promotion has a long way to go, looking forward to the company's future marketing efforts. Yellow rice wine has a long history and culture, and low concentration, no top, rich nutrition, in line with the public's dietary pursuit, but the overall demand is still weak, squeezed by other kinds of wine all the year round, according to our estimates, sales have only a low single-digit growth rate in recent years. The company said that the core consumers of yellow rice wine are limited, concentrated in Jiangsu, Zhejiang and Shanghai, and most of them are over the age of 30. We believe that the company, as a leader in the industry, has the challenge of both category and brand promotion in marketing, and the reality of limited scale and low gross profit margin may be difficult to support large-scale spending across the country. therefore, accurate and innovative marketing reform may be an urgent problem for the company to solve. We look forward to the transformational innovation in marketing after the new management takes office.

Valuation proposal

We keep the profit forecast for this year and next year unchanged, introducing a profit forecast of 224 million yuan for 2022. Taking into account the valuation switch, we give 2021 prime 51.4max 40.8x Pmax E for 22 years, raising the target price for 2022 by 29.1% to 11.3 yuan. The current stock price is trading at 50.3x39.3x Pmax E in 2021 Lane 22. At present, the market price has 3.8% upward space over the target price, maintaining a neutral rating.

Risk.

Other wine markets are aggressive, eroding the market share of yellow rice wine; if you increase marketing investment but the accuracy is not enough, it is difficult to achieve the expansion of consumption scenes and consumer groups; the cultivation and expansion of markets outside the province is unfavorable, resulting in lower-than-expected revenue.