The real estate business was divested, and the main business became more clear in 24 years
23 years' revenue/net profit/net profit deducted to mother of 105.9/-3.00/ -570 million, revenue -9.3% YoY (corresponding attribute/ deducted non-net profit in '22 was -670 million); 23Q4 revenue/net profit/ net profit deducted from non-net profit 17.9/-0.03/-280 million, revenue -0.6% YoY. 24Q1 revenue/net profit/net profit deducted from mother was $40.6/4.5/450 million (YoY -0.8%/+37.4%/+37.4%). The liquor business in '23 was centered on stabilizing the market, increasing marketing, upgrading the brand, and improving the guarantee system; the pork business was still affected by overall oversupply and loss of production capacity; while taxes and non-recurring profits and losses from the company's divestment of the real estate business in '23 affected profits. Looking ahead, the company's main business is more clear after divesting from the real estate business, and the liquor business is expected to continue to benefit from the boom in demand for food rations and alcohol. We expect EPS of 0.67/0.94/1.13 yuan for 24-26. Referring to the 24-year average of 28xPE (Wind agreed expectations), considering the food and wine dividends catalyzed by the external environment, we will give them 32x PE for 24 years, with a target price of 21.44 yuan to “increase their holdings.”
The liquor business structure continued to be optimized. The target terminal distribution rate for “Golden Label Aged” in key markets such as the Yangtze River Delta continued to rise, with revenue of 6.82 billion yuan (-15.9% YoY) of the liquor business in 23 years (+45.3%/-18.1%/-22.1% YoY), with premium revenue accounting for +6.0pct to 14.3% year over year. By the end of '23, the number of the company's dealers was 467 (a net increase of 25 over the end of '22).
The company performed steadily in Q1 in '24. In February, Niulanshan Distillery held an annual summary meeting with the goal of returning Niulanshan to the 10 billion target within 2-3 years. 2) The pork business revenue in '23 was 2.60 billion (-4.6% YoY), of which the slaughter business revenue was 2.40 billion yuan (-6.1% YoY), which is expected to be mainly affected by the pig cycle and the reduction in short-term production capacity. 3) The company's real estate business was completely divested in 23, and the future will focus more on the main business.
The gross margin of the liquor business in '23 was +6.0 pct year on year, and the non-liquor business dragged down the overall profit margin. The gross margin of the company was +0.1 pct to 31.8% year on year in '23, of which the gross margin of liquor was +6.0 pct to 50.2% year on year, a common effect of product price increases and continuous optimization of product structure; pork gross margin was -9.3 pct to -5.9% year on year, which is expected to be affected by market price pressure. The sales/management expense ratio in '23 was +2.6/+0.7pct to 11.4%/8.1% year on year, and the sales expense ratio for the liquor sector in '23 was +4.0pct year over year. This is expected to be due to strong marketing and market development. The net return margin for '23 was -2.8% (-5.9% for the same period in '22). The company's 24Q1 gross margin was -0.6 pct to 37.2% year over year, and the sales/management expenses ratio was -3.0/-0.4 pct to 5.4%/5.4% year over year. Expense optimization made the net profit margin +3.1 pct to 11.1% year over year.
Liquor starts again with the 10 billion dollar target to maintain the “gain” rating
Considering that demand for food rations will still take time to release and that the non-liquor business will still be disrupted in the short term, we cut 24-25 revenue by 8%/7%, and net profit from 24-25 by 35%/43%. Finally, we lowered our profit forecast slightly. We expect EPS of 0.67/0.94 yuan for 24-25 (previous 1.03/1.64 yuan), introduced EPS of 1.13 yuan for 26, target price of 21.44 yuan (previous 30.90 yuan), and maintain the “gain” rating.
Risk warning: Increased competition in the industry, food safety, demand for food rations and alcohol falls short of expectations.