From the Pearl River in the south, it is deeply cultivated in southern China. Pearl River Brewery was founded in 1985. With its beer quality and local cultural identity, it is highly competitive in the South China market. The company is a long-term stable holding by the State Assets Administration Commission+beer giant Budweiser InBev. It has international experience and localization advantages, and has gone through four stages of development: start-up, expansion, adjustment, transformation and upgrading. Since last year, along with the recovery of the consumption scenario, supported by high-end strategy+product price increases, Pearl River Brewery has achieved revenue growth, operating efficiency has gradually improved, and profits have been squeezed by the cost side of raw materials. In '23, the company achieved operating income of 5.378 billion yuan, an increase of 9%, sales volume of 1.4028 million tons, an increase of 4.8%, and net profit to mother of 625 million yuan, an increase of 4.22%.
High-end regional beer companies: Nationalization of sub-high-end single products is the main driving force. China's beer industry is in a period of change in volume reduction and price growth. Liquor companies have two ways to achieve prices. One is direct price increase. Historically, price increases are driven by costs, and future space is limited; the second is structural upgrading, resuming the structural upgrade path of regional brands. Iterating the next high-end single product+building differentiated brand IP is the core driving force for structural upgrading and profit growth.
Demographic and economic advantages determine that there is plenty of room for upgrading the Guangdong beer market. As the most populous province in the country, Guangdong Province's well-developed economic conditions provide a foundation for upgrading the beer structure, and beer consumption has sufficient demographic and economic support. Based on this, Guangdong has become an important market for Chinese beer and a must-compete place for manufacturers. As of '22, beer production has ranked second in the country, and leading wine companies have all deployed production capacity locally.
Pure birth is a spear, and channels are the foundation. On the product side, Pearl River Beer has formed a “3+N” brand matrix, using the Pure Life series as the core product to drive the company's performance growth. On the sales side, the company launched a “Beer+” marketing strategy to enhance brand exposure in all dimensions.
On the channel side, the sales per capita of the company's dealers in South China far surpassed that of other wine companies, consolidating the channel network foundation in the core market with network encryption plans.
Investment analysis: We predict that from 2024 to 2026, the company will achieve operating income of 5.794/61.72/6.533 billion, up 7.7%/6.5%/5.85% year on year, and achieve net profit of 6.98/767/ 84 million, respectively, up 12%/10%/10% year on year, respectively. The latest closing price corresponding to 2024-2026 PE is 25/23/21x. The company's 2024 valuation is an industry average, reflecting that the current valuation is reasonable. In the medium to long term, Guangdong and South China have a good economic base and large population, which determines that the local beer market has strong potential for structural upgrading. The company's own shareholder background and management are stable, has a product matrix combining high and low levels, and has a stable channel system in South China. Dealer strength is not weak, laying the foundation for product structure upgrading. Currently, 97 Chunsheng, which is in the price range of 10 yuan+, already has a scale of more than 200,000 tons. With the support of the South China base market, if it operates properly in the future, it is expected to rely on the South China market to further open up the potential for nationalization, then there are also differentiated points of view. We believe that since the current price of the company's stock price corresponds to the 2024 valuation, there are also some differentiated points of view in the future. For the first time, it was covered and given a “neutral” rating.
Risk warning: Competition in the high-end market has intensified, and the price of raw materials has risen sharply.