Matters:

The company released its 2023 report and achieved annual revenue of 14.815 billion yuan, an increase of 5.53% year on year; net profit to mother was 1,337 billion yuan, up 5.78% year on year. Among them, 2023Q4 achieved revenue of 1,786 billion yuan, a year-on-year decrease of 3.76%; net profit to mother was -0.07 billion yuan, and profit for the same period in 2022/Q4 was 801 million yuan, which turned into a year-on-year loss. It is proposed to distribute a cash dividend of 2.80 yuan per share (tax included).

Ping An's point of view:

Actively respond to external challenges and get off to a good start in Yangfan 27. In 2023, the company continued the overall growth trend of the three major indicators of sales, revenue and profit, and achieved a good start in the year of the Yangfan 27 strategy. According to data from the National Bureau of Statistics, in 2023, the beer production of enterprises above the scale of China was 35.555 million kiloliters, an increase of 0.3% over the previous year. The company actively responded to the opportunities and challenges brought about by changes in the external environment, and achieved sales volume of 2.997,500 kiloliters of beer in 2023, an increase of 4.93% over 2.856,600 kiloliters in the same period last year; far higher than the industry level.

The full price matrix layout continues to implement the high-end strategy. In terms of brand portfolio, the company relies on the “6+6” brand portfolio of “strong local brands+international high-end brands” to build a full-price product matrix to meet the diverse needs of consumers for high-quality beer. By product, in 2023, high-end beer represented by Carlsberg/Lebourg/1664/Red Wusu achieved revenue of 8.855 billion yuan, an increase of 5.18%; mainstream beer represented by Chongqing/Wusu/Dali/Xixia (with products at a price of 4-8 yuan) achieved revenue of 5.64%; and economical beer represented by Shancheng (products under 4 yuan) achieved revenue of 290 million yuan, an increase of 10.06%.

Profit space is expected to be freed up, and the Southern District performed well. The company achieved a gross profit margin of 49.15% for the full year of 2023, a year-on-year decrease of 1.33pct, mainly affected by rising raw material costs. The annual sales expenses rate was 17.10%, up 0.53 pct year on year, and the management expense ratio was 3.34%, down 0.47 pct year on year. The overall rate was properly controlled. The net profit margin for the whole year was 18.30%, a year-on-year decrease of 0.13pct. We believe that after the Ministry of Commerce announced the termination of anti-dumping duties and countervailing duties on barley imported from Australia, barley prices may continue to decline, and the company's profit elasticity is expected to be released. Subregionally, in 2023, the Southern Region achieved revenue of 4.334 billion yuan, an increase of 13.74%; the Central Region achieved revenue of 6.084 billion yuan, an increase of 3.01%; and the Northwest Region achieved revenue of 4,023 billion yuan, an increase of 1.10%.

Financial forecast and valuation: Considering that overall demand is still weak due to the macroeconomic environment, and sales of middle and high-end beer are affected, we adjusted our performance forecast. The company's net profit for 2024-2026 is estimated to be 1,429 billion yuan (previous value 1,688 billion yuan), 1,535 billion yuan (previous value), and 1,625 billion yuan (new), EPS of 2.95/3.17/3.36 yuan, respectively. PE corresponding to the closing price on March 29 is 21.8, 20.3 and 19.2 times, respectively. The Carlsberg Group announced that the “Sailing 27” strategy has entered a new stage of development, increased investment and support for selected growth engines, and raised growth targets. The company's 6+6 brand portfolio and major city plans are progressing steadily, and it is expected to maintain a good trend of high-end and nationalization in the long term and maintain a “recommended” rating.

Risk warning: the nationalization of the Soviet Union falls short of expectations; 1664 promotion falls short of expectations; the cost of raw materials such as barley and packaging materials exceeds expectations; industry demand falls short of expectations; industry competition intensifies; food safety risks.