2023 and 4Q23 results are in line with our expectations

The company announced 2023 results: 2023 revenue/sales/ASP/ton cost +5.5/+4.9/+0.5/ +3.2% year on year; net profit to mother +5.8% year on year; gross margin/sales expenses rate/management expenses rate/net profit margin to mother/net profit margin without return to mother year-on-year -1.3/+0.5/+0.0/+0.1ppt. Single 4Q23 revenue/sales/ASP/ton cost year-on-year -3.8/+4.8/-8.1/ +5.9%; net profit to mother -109% (loss of 0.07 million yuan); gross margin/sales expenses ratio/management expense ratio/net profit margin attributable to mother year-on-year -6.8/+4.9/+0.4/-4.8/-4.7ppt. The 2023 and 4Q23 results were in line with our expectations.

Development trends

Sales performance in 2023 was impressive, and the pace of high-end development dragged down a bit. In 2023, the company's beer business revenue increased 5.4% year-on-year, with volume/price +4.9%/+0.5% year-on-year, respectively. Looking at the structure, the recovery of Hongwusu and 1664 products from overseas fell short of expectations. The volume/price of the high-end series products above 8 yuan was +4.0%/1.2%, respectively; the 4-8 yuan mainstream series performed excellently, mainly because mainstream products were the main products in the base market, and the volume/price ratio was 6.0%/-0.3%, respectively. The 4Q23 tonnage price was -8.1% year-on-year, mainly due to the normalization of marketing investment and slight pressure on the high-end; 4Q23 industry output was -9.6% year over year, but the 4Q22 epidemic affected the low sales base, and the company bucked the trend and achieved a 4.8% increase in volume.

Costs were under pressure and sales expenses rose slightly in 2023, but management efficiency improved. On the cost side, in 2023, due to rising raw material costs, the company's cost per ton of wine increased by 3.2% year on year, and due to the slowdown in product structure upgrading, the company's gross margin decreased by 1.3 ppt year on year. On the cost side, advertising and marketing expenses increased 10% year on year in 2023, mainly due to the company strengthening market construction after the epidemic, which led to a sales expense ratio of +0.5ppt year over year. Benefiting from improved management efficiency, net interest rates remained stable throughout the year.

2024 outlook: The “Fast Sailing” strategy focuses on intensive cultivation of key projects and promotes the continuation of high-end technology. According to the company's annual report, the company plans to achieve medium to high single-digit revenue growth in 2024, and will continue to promote the “Yangfan 27” and “Fast Sailing” strategies to promote high-end upgrading. The company's “6+6” international brand+local brand layout is in various price ranges and scenarios. We believe that mainstream products are expected to maintain a growing trend under demand differentiation, and expand high-end products to the outside market under urban planning. We also suggest that high-end products are more sensitive to the restoration of nightclubs and restaurants. On the cost side, raw material costs declined, but depreciation and amortization increased due to the commissioning of the Guangdong factory, and the company's gross margin performance may be weaker than the industry's performance. We expect that the cost side may remain stable, the proportion of channel expenses will increase, air expenses will be reduced appropriately, and the focus of development expenses in major cities will shift to deep exploration in core cities; overall, profitability is expected to remain steady and rising.

Profit forecasting and valuation

We basically maintained a net profit of 1,47/1.6 billion yuan in 2024/25. The current stock price was traded at 21.2/19.5 times PE valuation in 2024/25, and we maintained a target price of 70.00 yuan/share, corresponding to the 2024/2025 23.0/21.2 times P/E valuation, with 8.6% upside compared to the current stock price. Maintain an outperforming industry rating.

risks

Poor structural upgrades, increased competition, poor channel management, food safety, etc.