Set up retail business assets and focus on e-commerce operations: The company was founded in 2004 and expanded through chain stores. It is a leading retail chain operator in Fujian. It was successfully listed on the Shenzhen Stock Exchange in 2008.
The company established its online business earlier. In 2016, it acquired internet marketing companies Jiuai Zhihe, Jiuai Tianjin, and Luzhou Zhihe. In 2022, the company set up a retail business that continues to be under pressure to focus on the internet marketing business. Chairman & General Manager Mr. Ni Guotao and the management team have rich resources for alcohol, daily chemicals, dairy products, mother and child channels, and are keenly aware of the Internet marketing market. In 2023, the company's revenue reached 2.82 billion yuan, of which the food category, mainly alcohol, accounted for 84%.
Brand demand is driving the rapid expansion of the e-commerce service market, and online retail of alcohol has great potential: the rapid development of online shopping drives the rapid expansion of the e-commerce service market, and the scope of services is becoming more and more diversified and refined. According to Ai Media Consulting data, the market size of China's brand e-commerce service industry in 2022 was 366.3 billion yuan. Among them, online retail sales of alcohol are developing rapidly, and the penetration rate is low, and there is still room for improvement. Popular prices welcome dividend opportunities. Currently, liquor sales channels are still mainly offline, but as the epidemic cultivates consumers' online purchasing habits and the proportion of online catalysts increases, the industry continues to expand. In 2022, China's new alcohol retail market is about 151.6 billion yuan, and the new alcohol retail market is expected to reach 174 billion yuan in 2025.
We believe that the reasons for the incremental alcohol online retail storage market are: 1) internal volume is intensifying under traditional channel inventory competition, and e-commerce penetration is low, and first-mover advantage is strong; 2) online channels in low-tier and sinking markets have lower customer acquisition costs; 3) industry concentration is accelerated, and the lower entry threshold for e-commerce sales gives small and medium-sized brands more opportunities; 4) the conversion of live streaming is stronger for the middle- and low-end price bands. In an industry trend where e-commerce live streaming is rapidly developing, medium- and low-priced liquor (including high-port food and wine) are expected to welcome dividend opportunities.
Based on data research, multi-dimensional core competitiveness empowers brand e-commerce operations: 1) Brand resources: The company has accumulated rich brand resources, achieved in-depth cooperation with leading brand customers Luzhou Laojiao and Shanxi Fenjiu, and expanded Wuliangye, Shuijingfang, Tsing Beer, Benfu, Yunnan Baiyao, Yili (liquid milk, Jindian, An Mu Xi, Shuhua, many grains, excellent sour cream, Xinhuo, QQ Star), Kimberly (Femfresh), Meijiajing, Betis (Batiste), etc. The customer collaborated with the brand to develop “Six Years of Cellar Song” and “Laojiao” from Luzhou Laojiao Exclusive custom products such as the “Family” series wine and Maotai Group's “Maoxian”. 2) Data research and back-office system support: The company built its own integrated marketing data service platform “Jiuai Zhixing” to empower the business and accumulate rich alcohol product data; at the same time, supply chain warehousing, logistics, customer service, etc. support the company's business. 3) Marketing effectiveness and product operation: The company has built an integrated marketing operation service platform driven by accurate consumer insight; at the same time, it deeply lays out live e-commerce and short video channels, relying on the ultimate matching of people, goods, and markets, and carries out live e-commerce and short video business through channels such as brand live broadcast rooms, self-operated matrix live broadcast rooms, and talent operation and distribution. The company carries out in-store broadcasts through the operation of channel brand live broadcast rooms such as Dikuyu and WeChat video accounts; develops in-store broadcasts through the creation of its own commercial live broadcast room matrices such as “Wine with Liquor” and “Jujiu” and independently incubates anchors; and carries out broadcasts through cooperation with mainstream MCN organizations and celebrity anchors.
The company continues to strengthen its supply chain system, broaden product categories, increase the number of products and SKUs, and continue to increase the revenue share of exclusive customized underwritten products.
Profit forecast and investment advice: The company lays out traditional offline retail business assets, which continue to be under pressure, and focuses on e-commerce operations. The company has the resource endowment advantage of alcohol brands, develops independent products, differentiated product system+strong supply chain advantage+strong data analysis to support market insight, and has sufficient first-mover advantage in alcohol sales.
At the same time, the company is expected to replicate the methodologies of industries with high e-commerce penetration rates, such as daily chemicals, drinking, mother and child, and home use, into the emerging liquor circuit. We expect the company's net profit to be 2.5, 3.0, and 360 million yuan in 24-26. The current stock price corresponds to the 2024 P/E of 14.6x, covered for the first time, and gave it a “highly recommended” rating.
Risk warning: risk of weak retail environment; risk of increased market competition; risk of fluctuations in e-commerce platform operations