Incident: Yanjing Brewery released its 2024 quarterly report. 2024Q1 achieved revenue of 3,587 billion yuan, +1.72% year-on-year, net profit to mother of 103 million yuan, +58.90% year-on-year, net profit of 103 million yuan after deducting net profit of non-return to mother, +81.72% year-on-year.
Profits have achieved highly elastic growth, and U8 is expected to maintain a high growth trend. The company achieved steady growth on the revenue side and highly elastic growth on the profit side in the first quarter. The performance was in line with expectations. 2024Q1 sales revenue reached 4.296 billion yuan, +7.29% year-on-year, higher than the revenue growth rate. The 2024Q1 contract debt reached $1,474 million, an increase of $256 million over the previous year, and +21.04% year-on-year. The reservoir was sufficient, laying the foundation for the continued release of full-year results. In 2023, the company's sales volume/tonnage price were +4.6%/+2.8%, respectively. U8's sales volume increased by more than 36% year over year in 2023. It is expected that in the first quarter of 2024, U8 will continue its rapid growth trend under a high base in the same period last year, driving the optimization of the company's product structure. The U8 precision card is in the current round of high-end core price upgrades and has a prominent strategic position within the company. Demand is resilient against the backdrop of a weak recovery in overall consumption. The company's 14th Five-Year Plan expects U8 sales to reach 900,000 kiloliters in 2025, corresponding to a CAGR of 30% in 2023-2025. Looking forward to 2024, the company will maintain high-quality development, continue to push forward nine major changes, adhere to the big single product strategy and enrich taki products on the product side. U8 continues to have high growth potential in the strong market in North China, gradually increasing penetration in the rest of the provinces, and has more room for nationalization. In addition, it will launch new refreshing and upgraded fresh beer to help the product structure continue to be optimized.
Under the reform and efficiency improvements, the cost ratio was clearly optimized, and the net interest rate due to mother increased significantly. 2024Q1's gross margin reached 37.18%, +0.40pct year on year. The increase in gross margin is expected to be mainly due to lower raw material costs and lower labor costs due to cost reduction and efficiency. The 2024Q1 sales/management/R&D/finance expense ratios were 11.93%/11.76%/1.90%/-0.95%, respectively, -0.57/-0.21/-0.06/+0.23pct. The company's cost ratio was clearly optimized, and the results of the reform were gradually showing. The 2024Q1 corporate income tax rate was 21.4%, or 7.3pct year on year. The subsidiary's loss reduction effect was remarkable. The net interest rate for 2024Q1 was 2.86%, +1.03pct year on year, and 2.86% after deducting non-return net interest rate. Under the influence of higher government subsidies in the same period last year, +1.26pct year over year, the profit side fully unleashed flexibility. Looking ahead to 2024, the cost side is expected to continue to decline in barley prices this year due to the cancellation of Australia's “double reverse” measures to drive cost improvements. On the management side, the company continues to promote optimization of production capacity and personnel to improve operating efficiency, and it is expected that reform dividends will continue to be released.
Investment advice: U8's high growth continues to boost the company's product structure. At the same time, with the release of the company's reform dividends compounded by expectations of falling costs, the profit side is expected to show greater flexibility. EPS is expected to be 0.33/0.41/0.49 yuan in 2024-2026, and the corresponding PE is 29x/23x/20x, respectively. Based on the 2024 results, the target price is 11.55 yuan, maintaining the “buy” rating.
Risk warning: Food safety risks, structural upgrades falling short of expectations, and increased risk of industry competition.