Incident: According to reports from the wine industry, the price of the eighth-generation Wuliangye will increase by 50 yuan/bottle from February 5, 2024, and the factory price will rise to 1,019 yuan/bottle, an increase of about 5%.
The implementation of the price increase is in line with expectations and is expected to boost the price performance of the P5. At the 2023/12/18 Joint Construction and Sharing Conference, the company proposed that in 2024, it would take the opportunity to moderately adjust the factory price of the 8th generation Wuliangye. The National Advisory Group Dealer Conference also announced that price increases are imminent. The pre-Spring Festival price implementation is in line with our expectations. Currently, many channels have reported that pre-holiday shipments in '24 have leveled off or surpassed pre-holiday sales, and the overall sales flow rate is relatively fast. In the context of traditional channel contract reductions, follow-up price increases during the peak season are expected to use Spring Festival sales to consolidate the effects of price control. Considering smooth pre-holiday shipments and stable pre-holiday batch prices, most channels expect that this price increase will boost subsequent price performance.
The scale is pragmatic, and jogging in small steps pushes the price back to value. The price increase of Eighth Generation Wuliangye was 50 yuan, a steady and pragmatic increase: on the one hand, after the price increase, Pu Wu's factory price was adjusted above 1,618, further clarifying the price positions of the two. Subsequently, along with Pu Wushu's high-end flag, 1618 will continue to act as a goalkeeper at the 1,000 yuan price and open up room for volume growth; on the other hand, the price increase should not be too high to avoid channel control risks caused by excessive inversion between factory prices and batch prices. The company tends to adopt a jogging strategy in small steps. In the future, it is not ruled out to narrow the “scissor gap” between factory price and batch price through channel policies to guarantee channel profits while promoting a reasonable return of price to value.
Price increase estimate: Conservatively, the price increase for the whole year of Pu 5 2024 is expected to be about 1%-2%. In terms of price, the current factory price increase is about 5%. Assuming that Pu 5's sales volume remains stable in 2024, a 60% payment was previously made at the price of 969 yuan. We conservatively estimate that this price increase will result in a price increase of about 2%, which will contribute to profit elasticity in 2024. Pu Wu's revenue is expected to increase slightly throughout the year. More of the company's revenue growth comes from products such as 1618, low-grade Wuliangye, non-standard, and strong flavored wine series.
Profit forecast and investment rating: Earlier, we emphasized that it is imperative for Wuliangliquid to control volume and price increases. Prices were adjusted smoothly at the beginning of the year, and the timing and price increase intensity were in line with expectations. The company's pricing strategy is clear, and the channel status is gradually improving. We believe that this price increase notice is expected to follow the trend and boost P5 pricing. It is a useful attempt to open up medium- to long-term price space, and also reflects the company's new face in terms of volume and price implementation. We adjusted net profit for 2023-2025 to be 300, 339 billion yuan, and 39.1 billion yuan (previous values were 302/342/38.7 billion yuan, respectively), with year-on-year increases of 12%, 13%, and 15%, respectively (previous values were 13%/13%/13%, respectively). The current market value corresponding to 2023-2025 PE was 17, 15, and 13 times, respectively, maintaining a “buy” rating.
Risk warning: macroeconomic recovery falls short of expectations; risk of food safety; risk of consumer scenario recovery falling short of expectations