Pearl River Brewery disclosed its 2023 annual report, achieving full year revenue of 5.38 billion yuan, +9.1% year-on-year, and realized net profit of 6.2/550 million yuan, or +4.2%/+4.6% year-on-year. 4Q23 achieved revenue of 830 million yuan in a single quarter, +1.2% year-on-year, and realized net profit attributable to mother/withheld from mother of 0.2 billion yuan to 0.5 billion yuan, compared to 0.3 billion yuan in the same period last year, respectively. Volume and price rose sharply throughout 2023, and the net interest rate of the mother fell slightly due to a decrease in interest income. 4Q23 sales continued to perform well, the tonnage price declined year on year, and the base effect put pressure on the tonnage cost. We believe that the trend of upgrading the industry structure will not change, there is no need to be afraid of short-term fluctuations in tonnage prices, and pay attention to the collaborative development of beer sales and the cultural industry.
The company's EPS is expected to be 0.33, 0.37, and 0.42 yuan in 24-26, +16.2%, +14.0%, and +12.3% year-on-year respectively, maintaining an increase in holdings ratings.
Key points to support ratings
Volume and price rose sharply throughout 2023, and the net interest rate of the mother fell slightly due to a decrease in interest income. 1) Revenue side: The company achieved annual revenue of 5.38 billion yuan, +9.1% year-on-year. The beer business performed well. Based on total revenue, volume and price were +4.8%/+4.1% year-on-year to 1.403 million kiloliters/3,834 yuan, respectively. The company continues to promote the “3+N” brand strategy, increasing its marketing efforts, and the sales growth rate is significantly superior to that of the industry (cumulative output of the beer industry in January-December +0.3% year-on-year ratio). By product structure, the company's high-end, mid-range, and popular products achieved revenue of 34.3/14.0/320 million yuan respectively, or +15.1%/-3.6%/+5.3% year-on-year. High-end product sales were outstanding, +16.0% year-on-year, driving the company's volume and price increase steadily. 2) Cost & expense side: Affected by the rise in raw material prices, the company's annual cost per ton increased significantly, +3.4% over the same period last year to 2192 yuan. Although the cost pressure is high, the company's gross margin was still +0.4 pct to 42.8% year-on-year, driven by product structure upgrades. On the cost side, the company's sales/management/R&D expenses ratio was +0.2/+0.5/-0.6pct year-on-year to 15.2%/7.4%/2.8%, respectively. We judge that the company has stepped up its efforts to develop dealers and terminals, so there has been an increase in the sales expense ratio. The increase in the management expense ratio is mainly due to an increase in employee remuneration. At the same time, due to the decline in interest income, the company's financial expenses increased by 44 million yuan compared to 2022. 3) Profit level: Affected by reduced interest income and rising management expenses, the company's net interest rates for the full year of 2023 fell 0.5/0.4 pct year-on-year to 11.6%/10.4%, respectively.
4Q23 sales continued to perform well. The tonnage price declined year-on-year, and the tonnage cost increased significantly due to the low base. 1) Revenue side:
In 4Q23, the company achieved revenue of 830 million yuan in a single quarter, +1.2% year-on-year. Sales volume/tonnage price were +4.0%/-2.8% year-on-year to 253,000 kiloliters/3,274 yuan, respectively. Sales continued to perform well, higher than the industry growth rate (-8.8%), but tonnage prices declined. We believe that the decline in the company's tonnage price may be due to increased promotional activities. 2) Cost & expense side: Due to the low cost base for the same period in 2022 (4Q22), the company's 4Q23 ton cost increased significantly, +8.4% to 2,368 yuan, and gross margin -7.4 pct to 27.7% year over year. On the cost side, due to the slowdown in revenue growth, the company's 4Q23 sales/management expenses ratio increased by 1.5/1.4 pct year-on-year, respectively. Due to the decline in interest income, the company's financial expenses for the 4Q23 quarter increased by 11 million yuan compared to 4Q22. 3) Profit side: Due to high tonnage costs, declining tonnage prices, and rising expense ratios, the company turned losses in the 4Q23 quarter. Net profit attributed/withheld from mother was -0.2/-50 billion yuan respectively, compared to 0.3 billion yuan for the same period last year.
The main beer industry is expected to continue to grow at a relatively rapid rate, focusing on the collaborative development of beer sales and the cultural industry. We believe that the trend of structural upgrading in the beer industry is essentially unchanged. Driven by marketing reforms, the company is expected to continue to deepen the “3+N” brand strategy and accelerate channel innovation and penetration, and the main beer industry is expected to continue the sharp rise in volume and price. At the same time, with the implementation of anti-Australian and McDonald policy changes, the company's higher cost flexibility is expected to be released in 2024. In the long run, in the beer culture industry, if the company can do a good job in collaborative development with beer sales, it will help improve the efficiency of the use of assets, and it is worth paying attention to.
valuations
We expect the company to continue to perform well in terms of beer sales and tonnage in the future. Combined with the 2023 annual report, we adjusted the profit forecast. The company's EPS for 24-26 is 0.33, 0.37, and 0.42 yuan, which is +16.2%, +14.0%, and +12.3%, respectively. The corresponding PE is 23.9 times, 20.9 times, and 18.6 times, respectively, maintaining an increase rating.
The main risks faced by ratings
Economic recovery fell short of expectations, channel inventories exceeded expectations, and raw material costs fluctuated.