The company's business development is steady, the dividend ratio has increased, and the “increase in holdings” rating has been maintained

In 2023, we achieved operating income of 33.126 billion yuan, up 10.04% year on year; net profit to mother was 10.016 billion yuan, up 6.80% year on year. In Q1 2024, revenue of 16.255 billion yuan was achieved, up 8.03% year on year; net profit to mother was 6.055 billion yuan, up 5.02% year on year. Revenue performance fell slightly below expectations, and structural upgrades slowed slightly. We lowered our 2024-2025 profit forecast and added a 2026 profit forecast. Net profit for 2024-2026 is estimated to be 111.0 (-22.1) billion yuan, 124.9 (-34.4) billion yuan, and 14.10 billion yuan, respectively, +10.8%, +12.9% year-on-year, and EPS is 7.37 (-1.46) yuan, 8.29 (-2.28) yuan, and 9.36 yuan, respectively. The PE corresponding to the current stock price is 13.0, 11.6, 10.2 times. The goal for 2024 is to increase revenue by 5%-10% year-on-year, continue to increase the dividend rate to 70%, and the dividend rate to reach 5%, and maintain the “plus” rating.

The structure of high-end wine products remains stable. Regular wine is expected to significantly upgrade the company's revenue of 285.39/3950 billion yuan in 2023, +8.82%/+20.70% compared to the same period. We expect the main banquet products such as Crystal Dream and Sky Blue to perform faster than average, and the M6+ performance in the new commercial price band will slow down. Sales volume/tonnage price in 2023 were -14.93%/+29.78%, respectively. The overall tonnage price changed a lot mainly due to changes in the structure of ordinary wine products.

Competition within the province has intensified, and the growth rate outside the province is better than within the province

In 2023, revenue from within and outside the province was 143.93 billion yuan, +8.05%/+11.85%. The main reason for the slowdown in growth in the province was that Dream 6+ accounted for a relatively high share of the impact, and the competition pattern within the province was more concentrated and intense.

The sales expense ratio increased, and profitability declined slightly

In 2023, we benefited from the optimization of the overall product structure. The company's gross margin was +0.64pct to 75.25% year on year, and the sales expense ratio/management expense ratio changed +2.38/ -1.10/-0.16pct year on year, respectively. Affected by the competitive environment, the company increased advertising, event promotion, etc., and the net profit margin in 2023 was -0.94 pct to 30.25% year on year.

2024Q1 gross margin was -0.57 pct to 76.03% year on year, sales expense ratio was +1.11 pct year on year, sales expense ratio continued to increase, and net margin -1.15 pct year on year to 37.24%, respectively.

Risk warning: macroeconomic fluctuations have led to a decline in demand, expansion outside the province falls short of expectations, etc.