Key points of investment:
Incident: The company disclosed its 2024 quarterly report. 2024Q1 achieved operating income of 3.587 billion yuan, a year-on-year increase of 1.72%, and net profit to mother of 103 million yuan, an increase of 58.9% year-on-year, after deducting net profit of 103 million yuan, an increase of 81.72% over the previous year. In our performance outlook, we predicted a 30% year-on-year increase in the company's Q1 profit, and the company's performance was higher than our expectations.
Investment Rating and Valuation: Maintaining the profit forecast, the net profit from 2024 to 2026 is expected to be 935/11.5/1.38 billion, up 45%/23%/20% year-on-year respectively. The latest closing price corresponding to 2024-2026 PE is 29/23/20x. We believe that Yanjing Brewery will continue to strengthen its major national products with U8 as the core, and expand the product matrix of major regional products and specialty items, and has considerable room for growth in the wave of high-end beer industry. In the context of state-owned enterprise reform, the company is expected to continue to achieve gradual development during the 14th Five-Year Plan period. As the company continues to improve its internal management level, optimize production capacity utilization, and there is plenty of room for profit margin improvement, it is expected to maintain a considerable net profit growth rate and maintain a “buy” rating in the future.
The 2024 revenue-side structural upgrade is expected to continue. According to data from the National Bureau of Statistics, from January to March 2024, Chinese enterprises above the scale produced 8.721 million kiloliters of beer, an increase of 6.1% over the previous year. Among them, the beer production of enterprises above the March scale was 3.069 million kiloliters, a year-on-year decrease of 6.5%.
After the Spring Festival, due to factors such as insufficient consumer confidence, the overall consumer demand for beer was under relative pressure, which is also expected to affect Yanjing Brewery's Q1 sales performance. Looking ahead to 24 years, from an industry perspective, demand for high-end beer is still resilient. The trend of upgrading the structure of medium to high beer is expected to continue along with the gradual recovery of catering and nighttime channels. At the corporate level, U8 has certain competitive and differentiated selling points in the 8 to 10 yuan price band, and nationalization still has broad space, and the company is still expected to achieve sales growth by building a sub-high-end product matrix with U8 as the core.
2024Q1 achieved a gross profit margin of 37.19%, an increase of 0.4 pct over the previous year. According to the company's announcement, we believe that the increase in gross margin was mainly due to: 1) product structure optimization brought about by the increase in sales share of high-end beer represented by U8; 2) the year-on-year decline in the cost of raw materials such as barley in 2024.
2024Q1 net profit margin was 2.87%, up 1.03pct year over year. According to the company's announcement, the 24Q1 sales/management/R&D expenses ratio was 11.93%/11.76%/1.9%, respectively, -0.55/-0.2/-0.06pct year on year. Considering that the number of employees in the company at the end of 2023 was 2,105, a year-on-year decrease of 2303, the dividends brought about by early staff reduction and fee reduction measures are expected to continue to be realized in 24 years. The 2024Q1 corporate income tax rate was 21.2%, down 7.36 pcts year on year. Minority shareholders' profit and loss accounted for 20.93% of net profit, down 6.85 pct year on year, all reflecting reduced losses and increased efficiency of subsidiaries. We believe that there is still plenty of room for the company to reduce staff and increase efficiency in the future. As the logic of reform and efficiency improvement continues to be implemented, performance is expected to continue to increase.
Core hypothesis risk: Competition for middle and high-end beer intensifies, and reforms fall short of expectations.