Incident Overview
According to Liquor, starting February 5, the factory price of the eighth-generation Wuliangye will increase from the current 969 yuan/bottle to 1,019 yuan/bottle, an increase of 50 yuan/bottle, or about 5%.
Analytical judgment:
Raise the price of boots and establish a new value system for super single products
According to Liquor, at the time of the 12/18 conference, management mentioned that 2024 will take the opportunity to adjust the factory price of the eighth-generation Wuliangye in 2024, so the issuance of this price increase announcement is a fulfillment of earlier market expectations. The last time the eighth-generation Wuliangye raised prices was when the product was fully refreshed and launched in 2019. At the same time, the price increase helped establish a new value system for super large single products; at the same time, the price increase, on the one hand, encouraged dealers to repay during the peak sales season before the price increase, and on the other hand, the price increase was moderate. After conversion, it is expected that dealer costs will increase by a small single digit throughout the year. In summary, we believe that the timing and extent of the price increase are more in line with market expectations, and also in line with the company's overall work tone of “taking the lead, striving for progress in stability, improving quality and efficiency, and making more contributions”.
Optimize product structure and boost market momentum
According to the wine industry, during the 12·18 conference, the company's management also mentioned that it is necessary to optimize the product structure, channel structure, and market structure. Specifically, it is mainly reflected in: 1) in the product structure, the eighth-generation Wuliangye did not increase its quota throughout the year, increasing the quota share of 1618 and 39 degrees of Wuliangye and special specification products; 2) in the channel structure, strengthening the layout and construction of “three stores in one”, upgrading the image of Wuliangye cultural experience stores, Wuliangye restaurants, etc., and promoting the construction of official self-operated stores in new retail channels; 3) In terms of market structure, further expanding group buying and direct sales networks, and collaborating with dealers to increase their efforts to expand to corporate customers. We believe it will help reduce the growth pressure of the 8th generation Wuliangye and further boost market momentum in line with price increases.
Under market-based management and operation, leading brands drive operations continuously upward in line with the strategy announced by the company at the 12·18 conference and the implementation of current specific price increase policies. We believe that it is basically in line with the market's expectations of Wuliangye's price and channel adjustments in recent months. At the same time, we judge that under the market-based operation of Wuliangye's management, the company's biggest name is still the strong brand power of Strong Fragrance Leader and the wide consumer recognition of the product at a price of 1,000 yuan. The adjustments in all aspects based on this are the icing on the cake for the company's long-term continuous improvement. Therefore, based on our core view of the “leading mindset” for liquor investment in 2024, the current stock price is only 14 times the 24-year PE, which is already at the bottom of the valuation for nearly 5 years. We recommend focusing on it.
Investment advice
The profit forecast remained unchanged, with operating income of 821/935/105.6 billion yuan for 23-25; net profit to mother of 298/341/38.8 billion yuan, and EPS of 7.68/8.79/10.01 yuan. The closing price of 126.5 yuan on February 1, 2024 was 16/14/13 times PE, respectively. Maintain a “buy” rating.
Risk warning
The macroeconomic downturn affects consumer demand; food safety issues; demand falls short of expectations during peak seasons; and increased competition within the industry.