Incident: On March 19, 2024, Wuliangye held a dealer conference in Chengdu. The conference sent a signal of positive reform.
Comment:
Face up to market issues and strengthen marketing style. In the past two years, in the face of environmental fluctuations, the market price performance of Eighth Generation Wuliangye has been weak, and channel profits have been shrinking. At this conference, Jiang Wenge, general manager of the company, deeply analyzed the development status of Wuliangye in terms of marketing, price increases, brand promotion, etc., and emphasized optimizing plan allocation, rationalizing the channel system, innovating growth methods, improving communication efficiency, strengthening tactical execution, solving current market pain points, and sending a positive signal of reform. From the perspective of brand strength, we believe that Wuliangye has a clear advantage. Even though there were always deviations in team execution in the past, it was difficult for the gift attributes of Eighth Generation Wuliangye to be replaced by competitors in the 1,000 yuan price range. As a large product with a scale of 50 billion yuan, it can still achieve sales growth, highlighting brand resilience. Currently, the company attaches special importance to work style optimization and firmly positions 2024 as the “marketing execution year”. We believe that with the Wuliangye brand and a more efficient executive team, existing market problems can be solved, and the channel is expected to enter a positive feedback cycle.
Clear product ideas and perfect the 1+3 product matrix. When growth pressure puts too much pressure on the Eighth Generation Wuliangye, it is easy to face the problem of volume and price balance. This is also one of the market problems that the company has not solved very well in the past two years. At this conference, the company announced Wuliangye's innovative new product creation plan. It will continue to develop limited quantities of scarce, high-value, and personalized innovative products, including the newly launched 45-degree Wuliangye and 68-degree Wuliangye. Furthermore, 1618 and low-grade Wuliangye are expected to be flanking products. On the one hand, they will continue to block the development of competitive products with a high-cost model, and on the other hand, they will slow down the volume of Eighth Generation Wuliangye; Classic Wuliangye is expected to establish a brand franchise company to strengthen Wuliangye's value expression at higher prices through a serial layout. We believe that with the help of a comprehensive product matrix, the price increase target of Eighth Generation Wuliangye is expected to be achieved, which will help improve channel profits and enhance the win-win relationship between manufacturers. Currently, the batch price of Eighth Generation Wuliangye has stabilized at around 940 yuan, up from around 20 yuan before the Spring Festival, and the price increase trend is improving.
Profit forecasting and investment ratings: At this conference, we felt the determination of Wuliangye manufacturers to raise prices uniformly. It is man-made. When the external environment supports it, internal changes are also relatively easy to advance. By clarifying the channel benefit distribution mechanism and reward and punishment mechanism, the level of confidence in implementing the reform is expected to increase markedly. We expect the company's diluted earnings per share in 2023-2025 to be 7.83 yuan, 8.80 yuan, and 9.80 yuan respectively, maintaining the company's “buy” rating.
Risk factors: impact of weak recovery in consumption; increased industry competition; food safety risks