Key points of investment
The company is the leading target for high-end liquor. In 24 years, the marketing implementation year carried out in-depth reforms. It is expected to take into account that prices exceeded expectations under Pu Five Control's price increases and the double-digit increase in annual revenue performance. Combined, the dividend rate may continue to rise. We are optimistic about the certainty of the company's medium- to long-term performance growth.
Company Overview: Wuliangye and wine series product system continued to improve, direct sales share increased & channel model optimization 1) Product structure: Wuliangye continued to improve the 1+3 product structure system, and launched new products such as 45-degree Wuliangye and 68-degree Wuliangye during Spring Sugar in '24. The series wine series created four major national strategic products: Wuliangqu, Wuliangchun, Wuliangol, and Jianzhuang. The revenue of the series wine series has broken 10 billion dollars since 2021; 2) Channel structure: based on the digital system, the direct sales share increased significantly, 23H1 The proportion has reached 41.97%, and the channel model has been optimized Upgraded, the number of specialty stores has exceeded 1,700 in 23; 3) Market structure: In 2022, the marketing war zone was divided into 26. Currently, traditional dominant markets such as the Eastern, Western and Central regions are performing well.
Exceeding expectations: The 24-year reform may have achieved remarkable results, establishing certainty for medium- to long-term performance growth. The market believes that the current external environment is still under pressure, demand for high-end liquor still needs to be recovered, the volume and price sorting of Wuliangye has not yet been completed, and there is a risk of deceleration in the medium to long term.
We believe that the current external environment on the industrial side has improved marginally, and Wuliangye's internal reform initiatives are clear. We are optimistic that the current Wuliangye reform will achieve good results, clarify the relationship between volume and price, and establish certainty in medium- to long-term performance growth.
1) External environment: Under the rigidity of demand for high-end liquor, the price of 1,000 yuan is still expanding. Under the rapid growth of high-end and sub-high-end prices, the Wuliangye series is expected to share the pressure of P5. In 2024, the liquor industry may experience an improvement in inventory & rising prices, and the industry will adjust or enter the end. Furthermore, Kweichow Moutai raised prices in November 23 to create favorable conditions for the general five price increases. We estimate that the scale of high-end wine will be about 150 billion yuan in 20 years, or 310 billion yuan in 25 years. The CAGR of the high-end wine industry will be about 15.63% in 2020-2025.
2) Internal initiatives: This internal reform focuses on solving the two major pain points of “restoring channel momentum” and “consumer demand exploration”, or meeting significant results. ① First, deepening the digital system; ② Second, building a channel network with the C-side as the main channel side to find the second growth pole on the channel side. In 2023, the number of specialty stores has exceeded 1,700, entering 5,000 enterprises and organizations to carry out corporate group purchases; ③ finding the second growth pole on the product side through eight-generation price control and improving the product matrix. 1618, low-grade Wuliangye, and series wines are all expected to welcome rapid growth.
Drivers: The general five-lot price may exceed expectations, revenue performance is expected to maintain double-digit growth, and dividend rates are expected to continue to rise
The market believes that although the current batch price performance is good and sales are excellent during the Spring Festival, the market is worried that there are downside risks associated with Pu 5's delivery and volume price increases, and that it is difficult to balance P5's full-year double-digit growth targets, and that it will be difficult to achieve double-digit growth in annual performance.
We believe that 2024 may face inventory improvements & upward price increases, and the industry will adjust or enter the end. In this context, Wuliangye's reform ideas are clear. Through digital empowerment, a channel network centered on the C-side will be built to create a second-tier growth pole on the channel side and product side. Under the eight-generation controlled price control+improvement of the product matrix, the general five batch price may exceed expectations, and revenue performance is expected to maintain double-digit growth. Furthermore, the dividend rate is expected to continue to rise.
1) The Pu 5 batch price exceeded expectations: In 24, the company was firm in its determination to raise prices through traditional channels by 20%, and raised to 940-950 yuan after the Spring Festival. Short-term price control and price support were excellent. Supported by medium- and long-term channel profits, the wholesale price of Wuliangye may reach 970 yuan in 2024, and the price performance of Pu 5 is expected to continue to exceed expectations.
2) Double-digit revenue performance growth targets: In the context of general five controlled price increases, we expect revenue growth mainly from: ① 1618+ low-grade Wuliangye is the core single product in Wuliangye products. We expect the two major products to maintain rapid growth in the context of increasing investment in low-grade Wuliangye and 1618 banquets in 24; ② series wine revenue exceeds 10 billion dollars. We expect to maintain relatively rapid growth in the context of the expansion of high-end and sub-high-end prices in 24; ③ the launch of 45 degrees Wuliangye during the 24-year Spring Sugar Refinement period, 68-degree Wuliangye and other products to supplement Wuliangye In addition to the intergenerational series, in addition to cultural products, Dragon Year Zodiac Liquor sells well.
3) The dividend rate is expected to increase: the dividend rate is 55% in '22. The company will steadily increase the dividend rate and continue to increase investor returns.
Profit forecasting and valuation
The determination to reform Wuliangye in '24 is firm, the external environment is improved and the internal reform ideas are clear. We are optimistic that this reform may have significant results. Combined, the dividend rate in '24 is expected to increase, so we recommend it as a key recommendation. We expect the company's revenue for 2023-2025 to be 827.40/920.04/101.917 billion yuan respectively, with year-on-year increases of 11.86%/11.20%/10.77%; net profit to mother will be 301.42/337.73/37.714 billion yuan respectively, with year-on-year increases of 12.93%/12.05%/11.67%, and the EPS is expected to be 7.77/8.70/9.72 yuan/share, respectively, with corresponding PE 19.19/17.12/15.33 times, respectively. The valuation is cost-effective and maintains a buy rating.
Risk warning
The price increase in the general five batches fell short of expectations, the effects of the reform fell short of expectations, and food safety risks.