Incident: Yanghe Co., Ltd. released its 2023 annual report and its quarterly report for 2014. In 23, it achieved total revenue of 33.126 billion yuan, a year-on-year increase of 10.04%, and net profit to mother of 10.016 billion yuan, up 6.80% year on year. Among them, total revenue for Q4 was 2,843 billion yuan, a year-on-year decrease of 21.51%, net profit to mother - 188 million yuan, a year-on-year decrease of 161.28%. The company plans to distribute a cash dividend of 46.6 yuan (tax included) for every 10 shares in fiscal year 23. Total 24Q1 revenue was 16.255 billion yuan, up 8.03% year on year, and net profit to mother was 6.055 billion yuan, up 5.02% year on year.

Mid-range and high-end wines grew steadily, and 24Q1 started smoothly. 1) Total revenue for the full year of '23 achieved double-digit growth. By product, revenue for high-end wine/regular wine in '23 was 285.39/3,950 billion yuan, +8.82%/+20.70% compared with the same period. The annual revenue growth of medium- and high-end wine was steady. It is estimated that Tianzhilan performed relatively well. Looking at the subregions, revenue within the province and outside the province in '23 was 143.93/18.096 billion yuan, respectively, compared with +8.05%/+11.85% over the same period. The increase in contributions from regions outside the province was relatively higher. As of the end of '23, the number of distributors in and outside the province was 2960/5829, a net decrease of 17, or a net increase of 568, and the investment promotion efforts in markets outside the province were further expanded. In terms of volume and price, the sales/average price of liquor in '23 was -14.9%/+29.5%, respectively, and the price increase was the main contribution. 2) The year-on-year decline in revenue for the 23Q4 single quarter is estimated to be related to the company controlling goods and digesting inventory before the peak season, and the quarterly statements have been adjusted. 24Q1 revenue increased by about 8% year-on-year. The total revenue for 23Q4 and 24Q1 was 19.098 billion yuan, an increase of 2.3% over the same period last year. It is estimated that Crystal Dream has benefited from banquets, code scanning preferential policies, and has maintained good growth in markets outside the province, such as Hunan, Hubei, and Jiangxi.

There was turbulence in 23Q4, and the 24Q1 non-profit margin was relatively stable. 1) The gross profit margin of 23Q4/24Q1 sales was 69.62%/76.03%, -5.5/-0.6pct year on year. The overall gross margin for the first quarter of '24 was relatively stable. The gross margin declined significantly in 23Q4, which is estimated to be related to the pace adjustment. 23Q4/24Q1 taxes and additional items accounted for 18.51%/16.01% of revenue, +8.4/+0.3pct, sales expense ratio 64.18%/8.52%, year-on-year +19.0/+1.1pct. The fourth quarter tax rate and expense rate increased significantly. It is estimated to be related to withholding expenses, consumption tax, etc., taking a comprehensive look at 23Q4/24Q1 net profit margin -11.33%/37.22%, 24Q1 net interest rate minus 0.44pct year on year, relatively stable. 2) Total cash payments from 23Q4 and 24Q1 sales amounted to RMB 22.218 billion, up 13.05% from the same period last year, and the growth rate was significantly faster than revenue. The total net operating cash flow of 23Q4 and 24Q1 was 6.637 billion yuan, up 10.49% year on year, and the cash flow situation remained positive. The contract debt as of the end of the first quarter was 5.82 billion yuan, a decrease from the end of 23. It is estimated to be related to revenue recognition.

Profit forecasting, valuation and rating: The company's revenue target for 24 years increased by 5%-10%, the dividend rate increased to 70% in 23 years (an average of about 60% over the past five years), and the cost performance ratio increased in terms of dividend rate. Considering that demand will take time to recover and the competitive environment is fierce, the 2024-25 net profit forecast was lowered to 10.7.5/11.84 billion yuan (down 11%/15% from the previous time), and the net profit forecast for 26 years was added by 12.94 billion yuan, equivalent to EPS of 7.14/7.86/8.59 yuan. The P/E corresponding to the current stock price is 13/12/11 times, maintaining the “buy” rating.

Risk warning: Competition within the province is intensifying, business demand is recovering slowly, and revenue growth outside the province is slowing down.