Incident: Chongqing Brewery announced its 2023 annual report, achieving total revenue of 14.815 billion yuan for the year, +5.53% year over year; net profit to mother of 1,337 billion yuan, +5.78% year over year. The fourth quarter of 2023 achieved total operating income of 1,786 billion yuan, -3.76% year-on-year; realized net profit to mother of -0.07 billion yuan, -109.22% year-on-year.
Revenue growth in 2023 was mainly contributed by sales growth, and the pace of high-end development has slowed down. In 2023, the company's beer business sales revenue was 14.441 billion yuan, +5.4% year-on-year. In terms of volume and price, the annual sales volume was 2.9975 million kiloliters, +4.9% year-on-year, and the growth rate was faster than that of the beer industry. In terms of average price, the average annual sales price of beer was 4,818 yuan/kilolitre, +0.5% compared with the same period last year.
In 2023, the sales volume of the company's Leburg and Chongqing brands with a price range of 6-10 yuan increased rapidly, while sales of 1,664 products with prices above 10 yuan were under pressure. In the end, the product structure was partially optimized, but the overall high-end pace slowed down.
2023 Cost pressure and increased investment in sales expenses constrained the increase in profitability. On the cost side, due to a sharp increase in barley procurement prices, production cost pressure remains in 2023. Although the company partially hedged cost pressure through cost reduction measures such as minor product structure optimization and supply network optimization, the hedging effect was limited, and the annual gross margin was -1.3 pct year-on-year. On the cost side, in an environment where consumption power is weak, the company increased investment in market and advertising expenses to promote sales. The sales cost ratio was +0.5pct compared to the same period. Other expenses are well controlled. The management cost rate/R&D cost ratio was -0.5/-0.6 pct, respectively, and the financial cost ratio remained flat. In 2023, the company achieved a net profit margin of 9.02%, +0.02pct year-on-year, with a small increase in profitability.
The company's cash dividend ratio increased to 101.4% in 2023. In 2023, the company plans to pay a cash dividend of 2.80 yuan (tax included) per share. The annual dividend ratio is 101.4%, which is still a slight increase from the 2022 high dividend ratio (the company's 2021/2022 cash dividend ratio is 83.0%/99.6%, respectively).
Profit forecast and investment advice: The resilient growth of Leborg and other products in the base market in 2023 helped the company achieve a smooth transition during the reform and adjustment period. Considering that spending capacity and consumer confidence have yet to fully recover, the company has set a mid-year to high single-digit revenue growth target for 2024. In 2024, the company will continue to rely on its superior product portfolio for market expansion. Currently, the Leburg, Carlsberg and Chongqing brands maintain good growth potential, and brand awareness is gradually increasing. The company is also committed to restoring the growth potential of the Wusu brand by solving channel pricing issues, enriching the product matrix, and maintaining brand investment. It is expected that the company will continue to achieve steady growth in 2024. We maintain our profit forecast for 2024-2025 and add a profit forecast for 2026: we expect revenue of $15.7.1/167.1/17.76 billion yuan for 2024-2026, +6.0%/+6.3% YoY, and net profit of 14.6/15.9/1.73 billion yuan, +9.4%/+8.9% YoY.
The current stock price is 21/20 times the 2024/2025 PE, respectively, maintaining a “buy” rating.
Risk warning: Macroeconomic growth has slowed beyond expectations; demand for middle and high-end beer has fallen short of expectations; the company's core product channel expansion results have fallen short of expectations; industry competition has intensified; and costs have risen above expectations.