Event: The company publishes its 2023 annual report. In 2023, the company achieved revenue of 33.937 billion yuan, +5.49% year over year; net profit to mother of 4.268 billion yuan, +15.02% year over year; net profit after deducting non-return to mother of 3,721 billion yuan, +15.94% year over year. Among them, 2023Q4 achieved revenue of 2,958 billion yuan in a single quarter, -3.37% year on year; net profit to mother of 640 million yuan, -15.01% year on year; net profit after deducting non-return to mother - 876 million yuan, or -34.53% year on year.

Sales declined slightly throughout the year, and mid-range and high-end products led to an increase in tonnage prices. (1) In terms of sales, the company achieved sales of 8.07 million tons of beer in '23, or -0.8% compared to the same period last year. Among them, the main brand in Qingdao sold 4.56 million tons, +2.7% year over year; middle and high-end sales volume was 3.24 million tons, +10.5% year over year, with a clear trend of product structure upgrading. The 23Q4 company achieved overall beer sales of 713,000 tons, -10.1% year over year, and the main brand in Qingdao achieved sales volume of 470,000 tons, -3.5% year over year. Among them, high-end products achieved sales volume of 338,000 tons, +7.1% year over year. Q4 may be affected by video public opinion events, but the company responded positively, and high-end technology progressed steadily. From the product side, Qingdao Classic, Qingdao White Beer, etc. continue to grow rapidly. New products such as 1 liter of fine puree and 1 liter of Crystal Pure Premium Premium Fresh Products are “fresh direct delivery”, driving the continuous improvement of the product structure. (2) In terms of tonnage price, the tonnage price of beer was +6.2% to 4,172 yuan/ton in 2023. Among them, the tonnage price of the Qingdao brand/other brands was +5.8%/+3.8%, respectively. 23A/23Q4 middle and high-end sales accounted for a year-on-year ratio of +5.1/+7.1pct to 71.1%/71.9%, respectively, driving the price of 23A/23Q4 tons of wine +6.2%/+7.5% year-on-year, respectively. Mid-range and high-end products led to a steady increase in the company's overall tonnage price.

Q4 Losses increased in the short term due to disturbances such as increased expenses. (1) In 2023, the company's beer ton cost was +3.3% to 2,565 yuan/ton, mainly due to rising raw material prices and structural optimization. Among them, the cost of 23Q4 tons was +4.3% year-on-year. The impact of excessive amortization of fixed costs is expected to be significant due to the decline in sales volume. In the face of increased tonnage costs, the company boosted 23A/23Q4 gross margin +1.8/+2.2pct to 38.7%/27.5% year-on-year, respectively, through product structure optimization. (2) The company's sales/management/R&D expense rates for the full year of 2023 were +0.8/-0.1/+0.1pct, respectively. Among them, the advertising rate was +0.9 pct year over year, the number of employees decreased by about 3.3% in '23 (administrative staff decreased by 23%), and other termination benefits for the whole year were +0.26 billion yuan year-on-year. With the main contribution of product structure optimization, 23a's net profit margin was +1.0pct year-on-year to 12.58%. (3) The 23Q4 sales/management/R&D expense ratio was +9.6/+4.2/ +1.1 pct, respectively. We expect to increase publicity and supervision and management after the video public opinion incident. At the same time, the impact of the company's implementation of a new corporate annuity plan in October 23 (an increase of 41 million yuan) will affect the 23Q4 net profit margin of -3.5 pct to -21.63% year on year.

Profit forecast: Affected by increased competition in the industry and consumer demand recovery falling short of expectations, the company's overall sales volume in 23Q4 was under pressure. Looking ahead to 2024, the fresh drinking scene will continue to recover. The company's base is low starting in Q2, and sales are expected to improve drastically in summer under the impetus of the Olympics and high-temperature catalysis. It is recommended to focus on peak season sales; the decline in the price of barley raw materials on the cost side is highly deterministic, and the recovery in consumption scenarios such as nighttime and catering is expected to continue to help the high-end process, and the company's growth certainty as an industry leader. We adjusted the profit forecast based on the company's annual report. We expect the company to achieve revenue of 356.6/372.6/38.84 billion yuan in 2024-2026, +5.1%/+4.5%/+4.2% year-on-year; net profit to mother of 50.8/57.7/6.41 billion yuan, +19.1%/+13.5%/+11.1% year-on-year, corresponding PE is 22x/20x/18x respectively, maintaining a “buy” rating.

Risk warning: Product structure upgrade falls short of expectations; high-end market competition intensifies; raw material costs rise; terminal consumption recovery falls short of expectations, etc.