Incidents:
The company released its 2023 annual report. For the full year of 2023, the company achieved operating income of 14.815 billion yuan, +5.53% year-on-year, and realized net profit of 1,337 billion yuan, +5.78% year-on-year, and realized net profit without return to mother of 1,314 billion yuan, +6.45% year over year. Looking at a single quarter, 23Q4 achieved operating income of 1,786 billion yuan, -3.76% year-on-year, realized net profit of -0.07 billion yuan, -109.23% year-on-year, and realized net profit deducted from non-mother of -13 million yuan, or -117.73% year-on-year.
In '23, the company plans to pay a cash dividend of 2.80 yuan (tax included) per share. The annual dividend ratio increased by 1.8 pct to 101.4% year-on-year, and the high dividend policy continues.
24-year target: The company plans to achieve medium to high single-digit revenue growth in 2024.
Key points of investment
Revenue analysis: The contribution of mainstream brands has increased, and the growth rate of tonnage prices has slowed. In '23, the company achieved revenue of 14.815 billion yuan, +5.53% year-on-year (of which Q1: +4.52%; Q2: +9.64%; Q3: +6.51%; Q4: -3.76%).
The company's beer business achieved revenue of 14.442 billion yuan, +5.4% year on year, sales volume of 2.998 million kiloliters, +4.93% year over year, corresponding to a tonnage price of 4,942 yuan, or +0.57% year over year. Among them, Q4 beer sales volume and tonnage price were +4.8% and -9.3%, respectively. We believe that the increase in Q4 volume and price decline was mainly due to low product turnover due to the impact of the 22Q4 epidemic, which had a high base effect.
1) By price range: High-end beer in 23 years (products with 8 yuan or above) achieved revenue of 8.855 billion yuan, +5.18%; mainstream beer (4-8 yuan products) achieved revenue of 5.297 billion yuan, +5.64% year over year; economical beer (products under 4 yuan) achieved revenue of 290 million yuan, +10.06% year over year. Looking at volume and price breakdown, sales of premium, mainstream, and economical beer increased by 3.98%, 5.97%, and 3.80%, respectively, and corresponding tonnage prices were +1.2%, -0.3%, and +6%, respectively. Overall, sales of all grades of beer have achieved steady growth, and the continued rise in the tonnage price of premium beer and the company's promotion of economical product structure upgrades have led to a significant increase in its tonnage price.
2) By region: The Northwest Region, Central District, and Southern District achieved revenue of 40.23 billion yuan, 60.84 billion yuan, and 4.334 billion yuan respectively in 23, compared with +1.1%, +3.01%, and +13.74% over the same period last year. The Southern District benefited from the rapid growth rate of major city plans and channel expansion.
Among them, the northwest, central and southern regions of Q4 achieved revenue of 256 million yuan, 7.34 million yuan, and 690 million yuan respectively, +23.4%, -3.6%, and -13.7% year-on-year, respectively. The recovery effect of the Northwest China market in Q4 was obvious, mainly due to the low base of 22Q4.
Profit analysis: The increase in barley prices has put pressure on gross margin, and the net interest rate to mother has remained stable. Net profit to mother was achieved in 2023 of $1,337 million, up 5.78% year over year (of which Q1: +13.63%; Q2: +23.52%; Q3: +5.32%; Q4: -109.23%).
1) In terms of cost, the company's yearly tonnage cost was +3.18%, of which raw material tonnage cost was +5.67% YoY. The company's gross margin for 23 years was 49.15%, down 1.33pct year-on-year, mainly due to rising prices of raw materials and packaging materials and the slow increase in tonnage prices due to the volume of products in mainstream prices. By structure, the gross margins of high-end, mainstream, and economic products were -1.57pct, -0.88pct, and +0.78pct, respectively. The profitability of middle- and high-end products all declined. Among them, Q4 gross margin was 48.79%, a year-on-year decrease of 6.8pct.
2) In terms of expenses: The cost rate for the 23-year period of the company was 20.20%, a year-on-year decrease of 0.56 pct. Among them, management and R&D expenses were relatively well controlled, with a year-on-year decrease of 0.47 pct and 0.61 pct, and the sales expense ratio increased by 0.53 pct year-on-year. Mainly, the company continued to increase its market investment efforts. In 23, advertising, marketing expenses, and wages and remuneration increased 10.09% and 7.34%, respectively. Taken together, the net interest rate returned to mother in '23 was 9%, which is basically the same as in '22.
2024 outlook: Mainstream prices will drive growth, and cost improvements can be expected in 24 years. Looking ahead to 2024, we believe:
1) Product portfolio: In 2024, the company's “Yangfan 27” strategy entered a new stage of development “Fast Sailing”. The company enhances the growth of high-end products in its product portfolio and accelerates the growth of categories other than beer. We believe that in the context of the upgrading of beer consumption, economic products will gradually be upgraded to mainstream products, driving overall revenue growth; 2) channel distribution: the company continues to promote the big city plan, plans to increase target cities from 91 to about 100 in 2024, and plans to expand channels in various cities to enhance brand power; 3) Cost side: the cancellation of the barley anti-barley policy may directly drive the improvement of raw material costs for beer companies. It is expected that the company's barley procurement costs will drop year on year, and the Foshan production base is expected to be put into operation in 24Q2, and the share of depreciation sales will increase or offset Cost dividends; 4) Expense investment: While maintaining the cost rate, the company increases investment efforts and focuses on the cost investment on the brand side.
Investment advice: Chongqing Beer is the vanguard of high-end technology. The “6+6” brand matrix is perfect, and the ability to create large single products is outstanding. As consumption power recovers, costs improve, the “Fast Sailing” strategy accelerates the high-end process, and refined channel adjustments continue to enable growth, the company's growth potential is expected to continue. We forecast that the company's revenue growth rates from 2024 to 2026 will be 6.0%, 5.7%, and 5.5%, respectively, and net profit growth rates of 9.6%, 8.1%, and 7.0%, EPS will be 3.03, 3.27, and 3.50 yuan, respectively. The corresponding PE will be 22.2x, 20.5x, and 19.2x, respectively, covered for the first time, giving a “buy-B” recommendation.
Risk warning: Increased industry competition, risk of rising raw material costs, food safety issues, consumption recovery falling short of expectations, product structure upgrades falling short of expectations, etc.