Key points of investment
Event: Total operating income of $14.815 billion (+5.53%) in '23; net profit to mother of $1,337 billion (+5.78%). 23Q4 total revenue of 1.786 billion yuan (-3.76%); net profit attributable to mother - $0.07 billion (-109.23%).
Volume and price rose sharply in '23. Wusu & Leburg & Chongqing & Carlsberg performed well in '23, with beer revenue of 14.44% (+5.44%), international brand/local brand revenue of 52.78/9.164 billion yuan (+8.30%/+3.86%). In '23, premium/mainstream/economy revenue increased 5.18%/5.64%/10.06% year-on-year, and the share of mainstream and economic revenue increased by 0.07 and 0.08 pct respectively. (The classification of grades has been adjusted in '23) Volume: '23 sales volume was 2.9975 million tons (+4.93%), 23Q4 sales volume was 345,800 tons (+4.76%); in '23, high-end, mainstream, and economy sales increased by 3.98%/5.97%/3.80% year-on-year.
2) Price: The tonnage price in '23 was 4,942 yuan/ton (+0.57%), the 23Q4 tonnage price was 5165 yuan/ton (-8.13%), and the high-grade/mainstream/economic tonnage price increased by 1.15%/-0.31%/6.03% year-on-year in '23.
Major cities plan to continue to cultivate. The Southern District market performed well in '23, with market revenue of 40.23/60.84/4.334 billion yuan (+1.10%/+3.01%/+13.74%), and in 23Q4, Northwest/Central/Southern District market revenue of 2.56/7.34/ 690 million yuan (+23.48%/-3.61%/-13.70%), of which we expect the share of Southern District's revenue to increase by 2.19 pct to 30.01% in 23, mainly due to the recovery of tourism in Yunnan and other places Demand recovered, and the share of revenue in Northwest China increased by 3.51 pct to 15.24% under the 23Q4 low base.
The slowdown in structural upgrades affects profitability, focusing on 24-year cost control and raw material cost improvement1) Profitability: 23-year gross margin -1.33pct to 49.15%, net margin -0.12pct to 18.30%; 23q4 gross margin -6.79pct to 48.79pct, net interest rate -9.86pct to 0.15%, mainly due to the slowdown in structural upgrades in 23 and 23Q4 cost investment returning to normal at a low base.
2) Cost: The cost of 23 tons is 2,513 yuan/ton (+3.27%), and the cost of 23Q4 tons is 2,645 yuan/ton (+5.92%). We expect barley procurement costs to decline in 24 under the termination of the “double reverse” measures of Australia and wheat, and it is expected that the cost of a ton will improve in 24 years.
3) Expense rate: 23-year sales/management (including R&D) cost rate +0.53/-1.08pct to 17.10%/3.52%, 23Q4 sales/management (including R&D) cost rate +4.88/-0.11pct to 33.10%/7.82%.
4) Cash flow: Operating cash flow in '23 was $3,097 billion (-17.47%), mainly due to increased tax expenses.
Profit forecasting and valuation
We believe that with Wusu outside the border expected to stabilize and Wusu & Lebao & Chongqing in China to maintain growth in 24, the company's target revenue growth rate is expected to achieve medium to high single-digit growth in 24, and profitability is expected to rise steadily under structural stabilization & cost control. We expect profits to grow by medium to high single digits in 24. The dividend rate in '23 reached 101%, and the current dividend rate exceeds 4%. Focus on fundamental improvements under high dividends.
Revenue growth in 2024-2026 is expected to be 6.0%, 5.3%, and 5.1%; net profit growth rates to mother will be 7.0%, 7.4%, and 6.9%; EPS will be 3.0/3.2/3.4 yuan/share, respectively; and PE will be 22.3/20.8/19.4 times. The current valuation is cost-effective and maintains a buy rating.
Catalysts: Continued consumption upgrades, smooth nationalization development in Wusu and Fort.
Risk warning: Overall sales of beer are slow; the sales situation in Wusu falls short of expectations.