Event

On October 27, 2023, Changyu A released the third quarter report of 2023.

Main points of investment

Performance in line with expectations, profit performance under pressure

2023 the total revenue of Q1-Q3 is 2.801 billion yuan (0.3%), the net profit is 425 million yuan (2%), and the non-return net profit is 379 million yuan (8%). 2023Q3's total revenue is 834 million yuan (3%), the net profit is 61 million yuan (20%), and the non-return net profit is 55 million yuan (19%). The performance is in line with expectations, and profits are still under pressure. At the profit end, the product structure is expected to continue to improve, with 2023Q3 gross profit margin rising 3pct to 59.15% year-on-year; under the influence of the increase in expense rate, 2023Q3 net profit margin decreased to 7.10% year-on-year. On the expense side, the 2023Q3 sales expense rate decreased by 0.1pct to 27.89% compared with the same period last year; under the influence of the company's implementation of the restricted stock incentive plan and amortization of equity incentive expenses, the 2023Q3 management expense rate increased to 10.64% from the same period last year. The business tax and additional share of 2023Q3 decreased by 0.2pct to 8.32% from the same period last year. On the cash flow side, the net cash flow of 2023Q3's operating activities was 203 million yuan (up 53%), and the sales rebate was 861 million yuan (up 1%). As of the end of 2023Q3, the contract debt was 173 million yuan (month-on-month + 27%).

The high-end has been continuously promoted, and the internal management has been continuously optimized.

In terms of products, the company is committed to promoting the high-end product structure, using high-end product positioning to create high-end brand image; using multi-brand layout to ensure that consumers meet the needs of multi-price belt, while highlighting the focus of some large brand products. At present, Changyu and Baina still account for a high proportion of wine products, while high-end brands such as Epheburg and Longyan account for a relatively small proportion. In terms of internal management, the company has a total of six sales departments. in the past, there was a problem of overlap in some other provincial markets. at present, the overlap rate is low, and the division of functions and powers of each division is becoming more and more clear. In terms of sales and promotion, the Longyan Division is currently focusing on the developed eastern coastal cities, and plans to target high-end consumers through circle marketing, and the proportion of high-end products is expected to increase.

Profit forecast

We are optimistic about the company's incentive plan to activate organizational vitality and use loop marketing to increase the proportion of high-end products. According to the company's three quarterly reports, we adjusted the company's EPS for 2023-2025 to 0.60, 0.77 and 0.85 yuan respectively (the previous value is 0.72, 0.80 and 0.88 respectively), and the current share price corresponding to PE is respectively times that of 47-37-34, maintaining the "buy" investment rating.

Risk hint

Economic downside risks, competition aggravates risks, and the promotion of high-end products is not as expected.