Key elements of the report

On March 29th, the company released its 2023 annual report. The report shows that in 2023, the company achieved operating income of 5.378 billion yuan (YoY +9.13%), achieved net profit of 624 million yuan (YoY +4.22%), and realized net profit of 557 million yuan (YoY +4.63%) after deduction. Among them, 2023Q4 achieved operating income of 827 million yuan (YoY 1.22%), net profit attributable to mother of 20 million yuan (YoY -171.43%), and realized net profit without deduction of 47 million yuan (YoY -883.33%). The performance growth rate was slightly lower than expected.

Investment highlights:

Gross margin increased, sales expense ratio/management expense ratio increased slightly, and net profit margin declined slightly.

The company's gross margin in 2023 was 42.82%, +0.39pcts year on year; in 2023, the company's net margin was 11.96%, -0.34pcts year on year. In 2023, the company's sales expense rate/management expense rate/R&D expense ratio were 15.19%/7.44%/2.81%, respectively, +0.22pcts/ +0.54pcts/-0.56pcts. The 2023Q4 sales expense rate/ management expense rate/ R&D expense ratio were 23.34%/12.58%/2.78%, respectively, +1.43pcts/+1.44pcts/-1.01pcts.

Supermarkets and e-commerce channels are strong, and high-end products have performed well. According to channel classification, the revenue of ordinary, supermarket, night, and e-commerce channels in 2023 was 4.863 billion yuan/135 million yuan/0.92 billion yuan/0.59 million yuan respectively, +7.92%/+38.51%/+13.32%/+17.74%, accounting for 90.42%/2.51%/1.10%, respectively. According to product classification, the company's high-end products are mainly pure draft beer and snow castle beer, mid-range products are mainly zero-grade beer, and popular products are mainly traditional beer, etc. The revenue of high-end, mid-range, and popular products in 2023 was 3.426 billion yuan/1,399 million yuan/324 million yuan respectively, +15.12%/-3.59%/+5.32% year-on-year, accounting for 63.70%/26.01%/6.02% respectively. High-end products accounted for the largest share and first growth rate. By region, the company achieved revenue of 5.110 billion yuan/268 million yuan in South China/other regions respectively in 2023, +10.54%/-12.24% over the same period last year, accounting for 95.02%/4.98%, respectively. South China is the company's main radiation area. In 2023, there was a net increase of 453 company dealers, including a net increase of 152 in Guangdong.

Product strength has been upgraded and has grown strongly, and the high-end process is progressing smoothly. The company deepened the “3+N” (Snow Fort, Pure Life, Pearl River + Features) brand strategy, launched the first ultra-high-end product, Nanyue Huzun, with industry-leading technical accumulation and strength, and released high-end products such as 980mL Pearl River Puree, New British IPA, and 7 Fresh Pearl River Puree. In 2023, the company achieved 1.4028 million tons of beer sales, up 4.79% year on year, and the tonnage price was 3,670 yuan/ton, up 3.76% year on year. Among them, sales of the company's premium beer products increased 15.96% year on year.

Pay attention to scientific research and development, and upgrade high-end intelligent green brewing industry. In 2023, the company established 73 new scientific research projects, 9 new authorized invention patents, 15 new invention patents, 21 utility model patents, and 1 design patent. Cultivate innovation platforms for subordinate enterprises, and 7 enterprises have been certified as specialized, special and new small and medium-sized enterprises at the provincial level. The company actively promoted the layout of photovoltaic power generation projects. Green electricity reduced carbon dioxide emissions by about 5,000 tons; switching from biogas power generation to biogas heat generation reduced carbon dioxide emissions by about 1,300 tons. 3 companies received the highest level of environmental integrity enterprise (green card).

Profit forecast and investment advice: Currently, the company continues to be high-end. It is expected to maintain steady growth by releasing profits from high-end products, and the decline in raw material costs in 2024 is expected to increase the company's profitability. However, the company's 2023 performance growth rate was slightly lower than expected. According to the latest data, the company's 2024-2026 net profit is expected to be 7.15/7.91/883 million yuan (2024-2025 net profit of 7.68/891 million yuan before the update), up 14.59%/10.74%/9.11% year-on-year, and the corresponding EPS is 0.32/0.36/0.39 yuan/share. The closing price on March 28 corresponds to PE of 24/22/20 times, and is lowered to “increase” ratings.

Risk factors: risk of market changes, risk of raw material supply and price fluctuations, industry competition risk, food safety risk.