On April 28, 2024, Alcoholic Liquor released its 2023 Annual Report and 2024 Quarterly Report.
Key points of investment
Expense reform was adjusted in depth, and the performance was slightly lower than expected
The cost reform period was deeply adjusted, and the performance was in line with expectations. Total revenue in 2023 was $2,830 million (same decrease of 30.14%), and net profit to mother was $548 million (same decrease of 47.77%). 2023Q4's total revenue was 687 million yuan (up 21.72% from the same period), and net profit to mother was 69 million yuan (same decrease of 10.05%), mainly due to the company's investment in the Jiachen edition and invested in red envelopes by scanning the code. 2024Q1's total revenue was 494 million yuan (same decrease of 48.80%), and net profit to mother was 73 million yuan (same decrease of 75.56%), mainly due to the concentration of repayments in Q4 after the launch of the new version. Expenses are being invested heavily, and profitability is under pressure. The gross margin/ net margin for 2023 was 78.35%/19.36%, respectively, -1.29%/-6.53%, respectively; the sales/management expenses ratio was +6.94/+1.53 pcts year-on-year, respectively. In 2023, the company focused on cost reform and strived to do a good job in cultivating consumers. Consumer marketing expenses increased 10% compared to last year, the number of effective core terminals increased 19% year over year, the number of open bottles and code scans increased 91% year on year, the number of wine changes on the box lid increased 53% year on year, and the number of banquets increased by 41% year on year. 2024Q1 gross margin/net margin was 71.08%/14.86%, respectively, -10.46/-16.26pcts year-on-year; sales/management expense ratios were +7.90/+4.34pcts, respectively. Due to the wrong peak during the Spring Festival, Q1 cash flow was under pressure, and the performance reservoir performed well. Net operating cash flow for 2023/2024Q1 was $0.51/-265 million, respectively; sales payback was $2,513/ $318 million, or -26.07%/-58.14% YoY.
As of the end of 2024Q1, contract liabilities were 235 million yuan, -17.54% YoY.
The promotion effect of the Red Temple Banquet was good. The revenue for participating in the new edition of Quick Breeding in 2023 was 7.15/16.47/0.71/388 million yuan, respectively, compared to -38.21%/-27.45%/-68.03%/-0.15%, respectively. In 2023, the company focused on the creation of large single products of 52-degree wine and Hongtan Liquor, and set up a Hongtan business department to be responsible for formulating strategies for the Hongtan Big Single Product. Through the “China Wedding” IP link banquet scene, the number of Hongtan 18 opened and scanned code increased by 70% throughout the year, the number of banquets increased by 40%, and hosted 38 “Fuyu China Tour” events in key markets. In 2023, gross margins of domestic workers and drunkards were -1.50/-2.46pcts, respectively, and gross margins were under slight pressure. In 2023, sales volume of Naisen, Alcoholics, and Other series was -32.69%/-17.62%/-74.65%/-9.34%, with an average price of -8.19%/-11.92%/+26.12%/+10.13%. The revenue impact of the Naisen and Alcoholics series was mainly due to the decline in sales.
Market coverage continues to increase, and efforts are being made to build a model market
Domestic and foreign revenue in 2023 was 28.16/0.04 billion yuan respectively, -30.19%/+101.30% year-on-year, respectively. In 2023, the company focused on building display outlets and banquet activities in the Hunan market within the province, and promoted the construction of 22 model markets outside the province.
The revenue of the distribution/direct sales model in 2023 was 2,798/032 million yuan respectively, -30.50%/+29.48% year-on-year, respectively. At present, the company has achieved 97% coverage of the national provincial market and 73% of the municipal market. In 2023, 1,381 dealers have been signed, and 393 specialty stores have been signed. The construction of core terminals surpassed 30,000.
Profit forecasting
We are optimistic that the company will continue to push forward cost reforms, putting pressure on short-term performance in exchange for long-term growth. Domestic pricing has shown a strong high-end brand strength, and the acceleration of Hongtan Marketing will reflect an increase in the influence of the next high-end. We expect the company's 2024-2026 EPS to be 1.50/1.83/2.25 yuan respectively, and the current stock price corresponding to PE is 34/28/22 times, respectively, maintaining a “buy” investment rating.
Risk warning
Downward macroeconomic risks, domestic revenue growth falling short of expectations, expansion outside the province falling short of expectations, and the volume of Red Tan falling short of expectations.