Incident: The company disclosed its 2023 annual report and achieved annual revenue of 14.815 billion yuan, +5.53% year over year; net profit to mother was 1,337 billion yuan, +5.78% year over year. Among them, 23Q4 achieved operating income of 1,786 billion yuan, or -3.76% year-on-year; net profit to mother was -0.07 billion yuan, which turned into a year-on-year loss.
The tonnage price has been rising steadily, and the high-end process continues. The company achieved sales volume of 3 million kiloliters of beer in 2023, +4.93% year-on-year, with sales volumes of 144/146/100,000 kiloliters of premium, mainstream, and economy prices, respectively, and +3.98%/5.97%/3.80%. At the tonnage level, the tonnage price of high-grade/mainstream/economy-grade beer was +1.15%/-0.31%/+6.03%, respectively. During the reporting period, the Chongqing Beer international brand achieved a total product sales volume of 835,500 thousand kiloliters, an increase of 7.93% over the previous year. The company's potential for high-end products such as Wusu and 1664 is expected to recover as channel cost support increases. Among them, the 1664 brand continues to iteratively upgrade the ultra-high-end beer category and launch two new products, 1664 Prestige Paris Champagne and 1664 Brut French Blue, to further meet consumer needs with a high-quality product matrix. Local brands also achieved product sales of 2.162 million kiloliters, an increase of 3.82% over the previous year. The company will also continue to use the company's R&D and innovation capabilities as an important high-end growth engine.
Cost-side pressure will ease, and profit margins are expected to increase. The company's gross margin decreased by 1.71 pct to 49.75% in 2023. On the cost side, the cost of a ton in 2023 was 2,421 yuan, +3.18% over the same period. The liberalization of tariffs between Australia and wheat is expected to reduce barley procurement costs in 24 years and ease the pressure on raw material costs; depreciation and amortization at the Foshan factory will drive costs to a certain extent, but it is expected that there is still room for improvement in the overall ton cost, and the company's profitability is expected to rise steadily in 2024. In 2023, the company's sales expense ratio was 17.10%, +0.53 pct year on year, due to the company increasing market investment and increasing market advertising expenses to drive business development; management expense ratio was 3.34%, -0.47 pct year on year; net interest rate was 9.02%, +0.02 pct year on year, and profitability increased steadily.
Investment advice: We believe that the decline in the company's raw material prices in 2024 will effectively ease the pressure on the cost side. At the same time, the company's product matrix layout is diverse, and the brand strength advantage is still remarkable. As the external business environment gradually recovers, it is expected to return to a good trend of sharp rise in volume and price, and profit margins can be expected to increase. Revenue growth rate of 7.8%/6.8% and profit growth rate of 12.71%/10.08% is expected in 24/25, maintaining the buy-A investment rating. The target price for 6 months is 87 yuan, which is equivalent to a dynamic price-earnings ratio of 28 times in 2024.
Risk warning: demand recovery falls short of expectations, high-end processes are blocked, and competition is intensifying.