On August 30, 2023, Changyu A released the 2023 semi-annual report.

Key points of investment

Product structure improved, profits exceeded expectations

2023H1 had total revenue of 1,967 million yuan (same increase of 1%), and net profit of return mother was 364 million yuan (same increase of 1%). 2023Q2's total revenue was 835 million yuan (same increase of 6%), and net profit of return mother was 87 million yuan (same increase of 28%). Revenue in the first half of the year was mainly affected by the year-on-year decline in Q1 sales volume, and Q2's profit performance exceeded expectations. The 2023H1 gross profit margin was 59.05% (+1 pct), net interest rate 17.83% (+0.1 pct), sales expense ratio was 23.03% (+2pct), management expenses ratio was 6.54% (+0.02pct), and sales tax and surcharges accounted for 6.68% (+1 pct). The 2023Q2 gross profit margin was 59.45% (+9pct), net interest rate was 10.47% (+3pct), sales expense ratio was 29.70% (+4pct), management expenses rate was 7.48% (-0.3pct), sales tax and surcharges accounted for 9.40% (+4pct). The increase in Q2 profitability was mainly due to product structure upgrades, and the share of high-margin product sales increased. 2023H1 Net cash flow from operating activities was $528 million (same decrease of 13%), and sales repayment of $2,065 million (same decrease of 1%). 2023Q2 Net cash flow from operating activities was 194 million yuan (same decrease of 37%), and sales repayment of 846 million yuan (same increase of 3%). As of 2023H1, contract liabilities were 136 million yuan (+2% month-on-month).

The promotion of high-end products has increased, and the tonnage price has risen smoothly

By product, 2023H1 wine/brandy/travel business/other revenue was 13.72/5.34/0.44 billion yuan, respectively, compared to -2%/+4%/+46%/+16%, and gross margin was 58.78%/58.64%/71.68%/60.92%, respectively, +1pct/+3pct/+4pct/-11pct. In the first half of the year, the company promoted the product structure to focus on the middle and high-end, with remarkable results; at the same time, the powers and responsibilities of each business division were refined and clarified, and each business sector developed healthily. By channel, 2023H1 distribution/direct sales revenue was 1,711/256 million yuan, respectively, -0.5%/+9%, respectively, and gross margin was 59.12%/58.52%, respectively. In the first half of the year, the company continued to carry out banquet promotion and group marketing activities, and direct sales channels performed well. Looking at the subregion, 2023H1's domestic/foreign revenue was 1,688/279 million yuan, respectively, +2%/-5%, and gross margin was 64.01%/29.01%, respectively, +2pct/-2pct year on year, respectively. Looking at the volume and price split, the sales volume of 2023H1 wine/brandy was 298/13,000 tons, respectively, -8%/-1%, respectively; the tonnage price was 461/41,100 yuan/ton, respectively, +7%/+6%, respectively. Product tonnage prices rose, improving profitability. As of 2023H1, there were 5060 total dealers, an increase of 147 over the beginning of the year.

Profit forecasting

We are optimistic about the company's incentive plan to activate organizational vitality and use circle marketing to increase the share of high-end products. According to the company's semi-annual report, we slightly adjusted the company's 2023-2025 EPS to 0.72/0.80/0.88 yuan (previous values were 0.74/0.80/0.87 yuan respectively). The current stock price corresponding to PE is 43/39/35 times, respectively, maintaining the “buy” investment rating.

Risk warning

The risk of economic downturn, risk of increased competition, promotion of high-end products falling short of expectations, etc.