Incident: The company released its 2023 performance report on April 16, 2024. The full year of 2023: The company achieved revenue of 1,469 million yuan, an increase of 23.92% (including: liquor sales revenue of 982 million yuan, an increase of 43.43%, pharmaceutical sales revenue of 417 million yuan, a decrease of 13.59%); realized net profit to mother of 22.0696 million yuan, an increase of 88.21%. Looking at a single quarter, the company achieved revenue of 396 million yuan in 23Q4, an increase of 6.84%; realized net profit of 12.7898 million yuan to mother, and a loss of 51.458 million yuan in the same period last year. On the same day, the company issued a pre-profit announcement for the first quarter of 2024. It is expected to achieve net profit of 13 to 19 million yuan in 24Q1, an increase of 5416.15 to 60.1615 million yuan over the previous year, and a loss of 41.1615 million yuan in 23Q1, turning a loss into a profit in a single quarter.
Product side: Steady cultivation of new Fuhexiang and No. 1 seed products, and maintenance of growth in chassis products. The company reshaped the product structure, focusing on cultivating new differentiated strategic products of Fuhexiang, upgrading the “Fuhexiang Series”, and increasing its mid-high-end cultivation efforts. In April 2023, Golden Seed Fuhexiang launched three Fuhexiang products, Fuhexiang 16 was launched. In March of this year, Fuhexiang 16 was launched, and the sub-high-end product matrix continued to improve. The company launched the number one seed product for light bottle wine, while also stabilizing the basic market for low-end old products such as soft and peaceful. The company's product system continues to be sorted out, and a large number of low-cost, low-margin SKUs continue to be cut, and the product structure is expected to continue to improve; accelerate cost reduction and increase efficiency, focus on high-margin products, and gradually clarify the “two wings in one” product line.
Channel side: China Resources channels continue to be empowered, and manufacturers jointly build and operate the market. The company has optimized the original dealer system and used China Resources's nationwide channel distribution network to quickly market Fuhexiang, new top seed products, and chassis products. Through grafting with China Resources, Fuhexiang has now sold more than 10,000 stores in the Anhui market. The company launched a digital system and implemented a “five-code relationship, strict control, price stability and price increase” to allow authorized channels, guarantee channel profits, and dealer enthusiasm. At the same time, accelerate joint construction with manufacturers: the company is responsible for building brands and using resources to enable management, market expansion and team development; dealers focus on strengthening the market and have a clear division of labor.
Organizational side: Internal organizational restructuring has basically been completed, and the results of cost control and efficiency have been shown. Since the introduction of China Resources executives, the company has fully intervened in corporate governance. Using China Resources's “three systems” management principle, the internal management system has been continuously straightened out.
At present, the company adheres to refined management, and the effect of reducing costs and increasing efficiency is obvious; strengthening marketing measures and implementing marketing initiatives such as the “Spring Festival Campaign” have achieved good results. The results of lean costs and cost control reforms have been shown. 2024 successfully achieved a good start, and the performance turned losses into profits.
Investment suggestions: The company optimizes and integrates functional departments, production and marketing organizations, reshapes the product structure, cultivates the top seed products in the Fuhexiang series, stabilizes basic market products, and combines China Resources's management experience and channel resources, which is expected to take on the return of population and market expansion dividends. We expect the company's revenue for 23-25 to be 1,469/19.32/2,614 billion yuan, respectively, and net profit to mother of -0.22/0.55/ 159 million yuan, respectively. The P/E corresponding to the current stock price is -/179/62X, respectively, maintaining the “recommended” rating.
Risk warning: Competition in the liquor market in Anhui heightens risks; internal management adjustments fall short of expectations; channel development falls short of expectations; and the cultivation of Fuhexiang products is progressing slowly.