Core views
The revenue growth rate in 2023 and 24Q1 reached 12.58% and 11.86%, successfully achieving the annual target. Since the end of 2023, the company has continued to optimize channels, adjust traditional channel quotas, actively promote channel repayment before spring, and increase price control efforts after the year. Wuliangye's performance has been outstanding, and market confidence has been boosted. The company continues to increase marketing, CCTV and new media advertisements increase exposure, launch QR code scanning red envelopes to promote digital marketing, increase investment in banquets and other scenarios, and increase sales expenses slightly. In the short term, Wuliangye's resilience across cycles has been continuously verified, and sales performance is relatively good. In the long run, Wuliangye can be expected to return to the value of King of Fragrance under the upgrading and improvement of the product structure and continuous deepening of channel reforms.
occurrences
The company released its 2023 annual report and 2024 quarterly report.
In 2024, the company achieved total revenue of 83.272 billion yuan (+12.58%); net profit attributable to mother of 30.211 billion yuan (+13.19%); net profit of non-return to mother of 30.116 billion yuan (+12.96%).
In Q4 alone, the company achieved total revenue of 20.736 billion yuan (+14.00%); net profit attributable to mother of 7.378 billion yuan (+10.10%); net profit not attributable to mother of 7.375 billion yuan (+11.02%).
2024Q1 achieved total revenue of 34.833 billion yuan (+11.86%); net profit attributable to mother of 14.045 billion yuan (+11.98%); net profit after deducting non-return to mother of 14.039 billion yuan (+12.71%).
Brief review
Optimize marketing and increase sales, and exceed the target in 2023.
The company's alcohol business revenue in 2023 was 76.447 billion yuan (+13.15%). In terms of volume and price, the company sold 159,000 tons (+25.12%) of alcoholic products in '23, with an average tonnage price of 485,500 yuan/ton (-9.57%). Against the backdrop of weak recovery in annual consumption, the resilience of the Wuliangye brand was further highlighted. Product marketing performance was outstanding. The decline in tonnage prices is expected to result from the company's strategic development of low-grade Wuliangye and other products, and the volume of popular products such as Jianzhuang by Nongxiang Company is relatively good.
By product, the company sold 38,600 tons (+17.98%) of Wuliangye and 120,400 tons (+27.60%) of other alcoholic products in '24, respectively. Wuliangye contributed 62.805 billion yuan (+13.50%) to revenue; other wine products contributed 13.643 billion yuan (+11.58%) to revenue.
Corresponding to the average tonnage price of Wuliangye Liquor in '23 was 1,624,600 yuan/ton (-3.80%), and the average tonnage price of other alcoholic products was 113,300 yuan/ton (-12.56%).
Pu Wu continued its strong sales trend at a price of 1,000 yuan. In '23, the company launched the new Ziqi Donglai Wuliangye, and completed 18 new cultural wines, including Wanshoutan and Panda-shaped wine, and increased investment in individual products such as 1618 for the banquet scene; after 22 years of adjustments, sales of products such as Wuliangchun and Jianzhuang increased significantly. The sales performance of products such as Wuliangchun and Jianzhuang was good, and the average number of code scans per day increased by more than 70% over the same period last year.
By channel, distribution and direct sales channels contributed 49.585 billion yuan (+13.56%) and 30.462 billion yuan (+12.53%) respectively in 2023, and the share of dealer channels increased slightly by 0.22pct to 60.15%. The company actively promoted terminal construction, adding 26,000 core terminals. The number of “three stores and one” specialty stores reached 1,663 and covered more than 300 cities, and continued to develop channels such as supermarkets and e-commerce.
Looking at the subregions, revenue for the Eastern, Southern, Western, Northern, and Central regions in '23 was +17.92%, -8.97%, +21.71%, -4.04%, and +16.30%, respectively.
Strong markets such as the West and East continued their high growth trend, with sales reaching 26.215 billion yuan and 22.389 billion yuan respectively.
24Q1 had a good start and was successfully implemented, laying a good foundation for achieving business goals throughout the year.
In 24Q1, the company's revenue and profit increased by 11.86% and 11.98% respectively. In the first quarter, the company actively boosted dealer repayment progress in anticipation of price increases, and successfully raised prices in early February. Actions such as price control and Pinduoduo's anti-counterfeiting boosted channel confidence. In addition, the company also increased marketing support for products such as 1618 and low-grade Wuliangye, creating a good start for the whole of '24.
Cost structure optimization, slight increase in profitability
In 2023, the company's gross profit margin was 75.79% (+0.37pcts), the sales expense ratio was 9.36% (+0.11pcts), the management expense ratio was 3.99% (-0.16pcts), the net profit margin to mother increased 0.20pcts to 36.28%, and the net profit margin after deducting non-return to mother increased 0.12pcts to 36.17%. Combined with the company's product and channel optimization measures in 2022, it is expected that the company's gross margin will increase, and the share of major Wuliangye products will increase. Even if the sales expense ratio increases, the scale effect will lead to a slight optimization of net interest rates. In 2023, the company gradually improved digitalization, and basic code scanning red envelopes were introduced for core items of 1618 and below; scene marketing was strengthened, product promotion efforts were enhanced, and annual promotion fees reached 4.540 billion yuan. In addition, the recovery year strengthened brand exposure, with online advertising of 181 million yuan (+43.56%), offline advertising of 678 million yuan (-10.20%), and television advertising of 575 million yuan (+60.17%) throughout the year.
23Q1 The company's gross profit margin was 78.43% (+0.03pcts), sales expenses ratio was 7.53% (+0.75pcts), management expense ratio was 3.06% (-0.47pcts), net income to mother increased 0.04pts to 40.32%, and net profit margin after deducting non-return to mother increased 0.30pcts to 40.30%.
King of Fragrance has excellent fundamentals and is historically low in valuation.
In 2024, the company proposed the goal of “consolidating and strengthening the steady development trend and maintaining steady double-digit growth in total revenue”. In the short term, Pu 5 completed price increases, optimized traditional channel quotas, and actively guided price increases; 1618. Wuliangye's support has strengthened, and as consumer recognition increases, it is expected to become an important growth pole for the whole year. Increasing quota support for some culturally customized wine and promoting marketing organization reform and efficiency will be able to effectively achieve business goals.
The results of combing Wuliang's aromatic products are gradually showing, and it is expected to achieve good growth against the backdrop of continued improvement in mass price sales. In 243, the company's brand power has continued to improve over a long period of time. Consumer loyalty is sufficient. Through channel organization and dealer profit optimization, greater market momentum can be stimulated, and there is room for growth.
The company's revenue for 2024-2026 is expected to be 932.04, 105.68,119.40 billion yuan, up 11.93%, 13.37%, and 13.51% year-on-year; net profit is 338.93, 387.23, and 44.266 billion yuan respectively, up 12.19%, 14.25%, and 14.32% year-on-year; corresponding EPS is 8.73, 9.98, and 11.40 yuan respectively. On April 26, 2024, the stock price, the 2024-2026 dynamic PE was 17.44, 15.26, and 13.35 times, respectively. Maintain a “buy” rating.
Risk warning:
The recovery in consumer demand falls short of expectations. Economic growth has decelerated in the past 2 years due to factors such as the macro environment, and national income growth has also been affected. The pace of recovery in the short to medium term residents' income growth rate and the pace of increase in consumption power may fall short of expectations in the future; economic recovery falls short of expectations. In the year of economic recovery, the pace of improvement in corporate cash flow may be slower than expected, and demand for company products in the commercial alcohol consumption scenario may fall short of expectations; food safety risks, food safety issues have always been a hot topic of consumer concern in recent years. Although enterprises in the industrial chain have continuously improved the level of production quality control, Due to the long industrial chain, many links and enterprises involved, there are still risks related to food quality and safety