Incident: Chongqing Brewery releases its 2023 annual report. In '23, we achieved operating income of 14.81 billion yuan, +5.5% year on year; net profit to mother of 1.34 billion yuan, +5.8% year on year; net profit after deducting non-return to mother of 1.31 billion yuan, +6.5% year on year.
Among them, 23Q4 achieved operating income of 1.79 billion yuan, -3.8% year on year; net profit to mother of 0.1 billion yuan, which changed from profit to loss year on year; net profit after deducting non-attributable net profit of -0.1 billion yuan, which changed from profit to loss year over year.
The increase in tonnage prices has slowed slightly, and the “Big City Plan” has driven the Southern District to achieve relatively rapid growth.
In 2023, the company achieved 2.9975 million kiloliters of beer sales, up 4.93% from 2022; ASP +0.5% year over year.
1) According to product grade: sales volume of highest/mainstream/economy grade products was 143.75/146.16/984,000 kiloliters, yoy +3.98%/+5.97%/+3.80%, achieving revenue of 88.55/5297/290 million yuan, respectively, +5.18%/+5.64%/+10.06%. The company took the initiative to upgrade the economic grade product structure, and the tonnage price of such products increased significantly. 2) By region: In 2023, the company's sales volume in Northwest District/Central District/South District was 81.68/137.92/801,600 thousand kiloliters, yoy +3.90%/+2.46%/+10.65%, achieving revenue of 40.23/60.84/4.334 billion yuan respectively, +2.78%/+9.86%/+13.14% over the same period last year. The Southern District achieved rapid growth, driven by the “Big City Plan.”
Gross margin was under pressure due to rising barley prices, and net profit margins remained stable year-on-year throughout the year.
1) The gross margin of the 23/23Q4 company was 49.15%/48.79%, respectively, -1.33/ -6.79pcts year-on-year. The pressure on gross margin is mainly due to rising prices of raw materials, including barley; in 2024, barley prices are expected to drop year on year with the cancellation of Australian and wheat tariffs, and cost pressure is expected to ease. 2) In '23 and 23Q4, the company's sales expenses ratio was 17.1%/33.1%, compared with +0.53/+4.88pcts, mainly due to the company strengthening advertising and marketing expenses. 3) The 23 year/23Q4 management expense ratio was 3.34%/7.1%, respectively, -0.47/+0.45pcts year over year. It is mainly due to the company controlling managers' remuneration and strengthening the control of office expenses and intermediary service expenses. 4) Overall, the net profit margin of the company reached 9.02%/-0.42% in 2013/23Q4, +0.02/-4.79pcts year-on-year.
Channel construction has been strengthened in 24 years, and the high dividend ratio has increased investment attractiveness.
Affected by weak consumption and channel adjustments in '23, the growth rate of the company's high-end products slowed down throughout the year. Among them, sales of Carlsberg and Fenghua Xueyue grew rapidly, while sales of 1664 and Jiangsu declined year-on-year; mainstream products such as Leburg and Chongqing met the current consumer environment, and sales achieved medium to medium to high single-digit growth, and internal upgrades progressed steadily.
At the beginning of '24, due to the restoration of the consumption scenario and the low base, the company's sales growth picked up, and the growth rate was faster than the industry. Looking ahead to 24 years, the company plans to make certain adjustments in both cost investment and recommendations for major city plans. In terms of cost investment, the company's previous spending was concentrated on the brand side. This year, it will increase ground sales investment: increase sales staff and promotional activities. This measure is expected to make up for the company's shortcomings in channel intensive cultivation. Furthermore, in terms of the big city plan, the company expects to add 9 new major cities in 24, while also concentrating on the existing city network, with the primary goal of increasing market share.
Chongqing Beer's dividend rate is at a high level within the sector. The dividend rate for 21-23 was 83%/100%/101%, respectively, and it is expected to continue to maintain a high dividend ratio in 24 years. The company's 24-year strategy is shifting to refined channel management, and we need to pay close attention to the specific progress; the company's dividend ratio is high, so it is recommended to focus on it.
Profit forecast, valuation and rating: We maintain the company's 2024-2025 net profit forecast of 1,463/1,597 billion yuan, respectively, and introduced a 2026 net profit forecast of 1,719 billion yuan, equivalent to the 2024-2026 EPS of 3.02/3.30/3.55 yuan, respectively. Corresponding to 2024-2026 PE is 21x/20x/18x, respectively, maintaining a “buy” rating.
Risk warning: The industry's marginal competition is more intense than expected; raw material costs are rising higher than expected.