Incidents: Recently, Wuliangye issued a price increase notice; announced an action plan to improve quality return; announced the Group's progress in increasing its holdings; and announced the investigation of e-commerce platform stores such as Pinduoduo selling counterfeit Wuliangye products.
Wuliangye's price increase this time tends to be successful: According to reports from the wine industry and other media, Wuliangye Distillery previously announced that the factory price of the 8th generation Wuliangye will increase by 50 yuan from February 5, 2024, from 969 yuan/bottle to 1,019 yuan/bottle. In line with our previously published “Wuliangye: Will this time follow Maotai's price increase? ” Judgment in the report: After Maotai raised prices, it is “still quite likely” that Wuliangye will follow the trend and raise prices. Whether Wuliangye can successfully raise the factory price this time is a key concern of the market. The core concern is whether it can drive up the batch price. We saw some third-party statistics, such as the price of Bairong Liquor. The wholesale price of Wuliangye rose slightly in March. The price increase indicates that Wuliangye's current price increase is expected to be successful. The core is also due to healthy sales during the Spring Festival season, the winery's control over overall delivery, and the cooperation of major merchants. Due to price increases, dealers are expected to pay more actively than in previous years, and performance at the company level will also be better guaranteed.
Expectations to increase the dividend rate: Wuliangye issued the “Notice on the Action Plan for Double Improvement of Quality and Return” on March 6, stating that “in the future, the company will steadily increase the dividend rate.” The company's 2022 cash dividend payout rate is 55%, and the dividend rate is 2.5% based on 2022 dividends per share and current share price. Considering the small size of capital expenditure compared to net operating cash inflows, there is a basis for a steady increase in future dividends.
Investment advice: Since the market generally lacked confidence in whether Wuliangye's current price increase will be successful, various current signs indicate that Wuliangye's current price increase is trending towards success, and the current situation will fix previous pessimistic expectations. Expectations that the dividend rate will rise steadily in the future will also increase the attractiveness of the company's shares. There is no further information on the profit situation at this time, so we maintain our previous earnings forecast of EPS 7.75/8.69/9.83 for 2023-2025. The P/E corresponding to the closing price of 152.49 yuan on 2024/3/15 was 19.7/17.6/15.5 times, respectively, maintaining the “recommended” rating.
Risk warning: the risk of increased competition and the risk that the weakening economy will cause demand for high-end alcohol to fall short of expectations.