Key points of investment

Incident: Achieved revenue of $30.233 billion in '23, +20.34% YoY; realized net profit to mother of $13.246 billion, +27.79% YoY. 24Q1 achieved revenue of 9.188 billion yuan, +20.74% year over year; realized net profit of 4.574 billion yuan, +23.20% year over year. Revenue performance was in line with expectations.

We believe that in '23, the company moved comprehensively from a strategic preparation period to a strategic offensive period. In '23, the company's national distribution network tripled year-on-year, and grew in an orderly and effective manner with the support of the five-code system. In 2024, the company will adhere to the construction goals of the 1110,000 and double 124 projects and promote “well drilling projects” in the base market. We believe that in the context of the company strengthening Guojiao volume and price control, promoting the expansion of channel terminals, and increasing the cultivation of waist products, cost investment efficiency will improve with enhanced superposition channel operation capabilities, and growth potential is expected to continue to be unleashed. Based on target achievement over the years, we expect revenue growth in 24 to exceed the target (target growth rate of not less than 15%).

Guojiao maintained rapid growth, and the channel structure was further optimized

1) By product: In '23, the company's revenue from high-end wine/other liquor was 26.841 billion yuan/32.36 billion yuan, compared with +21.28%/+22.87%, respectively. Among them, the share of high-end liquor increased by 0.68pct to 88.78%. The sales volume/tonnage price of high-end alcohol in the middle of the year was +1.24%/+19.79%, respectively, and the sales/tonnage price of other alcoholic beverages changed +19.64%/+2.70% year-on-year, respectively. The sales and opening results of the company's main products during the Spring Festival in '24 exceeded expectations. Inventory of major individual products was good, and market prices were stable.

2) Channel division: The company's traditional channel operation model/emerging channel operation model achieved revenue of 28.657 billion yuan/1,420 billion yuan respectively, respectively. Among them, the share of the traditional channel operation model increased by 2.04pct to 94.79%. The number of domestic/overseas dealers changed +7/-22 year-on-year in 23, and the overall size of the company's single dealer increased 24.00% to 15.7.97 million yuan/home. The channel structure was optimized.

Profitability continued to improve. 24Q1 advance payments hit a record high in the first quarter 1) The gross and net margin for 23 years was +1.71/+2.52pct to 88.30%/43.95%, 24Q1 gross and net margin +0.28/+0.92pct year on year to 88.37%/49.83%, and the main reason for the increase in net interest rate was structural upgrade+cost control.

2) Sales/management (including R&D) expenses in 23 were -0.58/-0.93 pct to 13.15%/4.52% year on year, and 24q1 was -1.23/ -0.79pct to 7.85%/2.82% year on year, respectively. The decrease in sales expenses was mainly due to a 14.15% year-on-year reduction in advertising expenses in 2023. In addition, promotion expenses increased 107.62% year over year. The cost structure was skewed towards directly promoting marketing and improving cost investment efficiency.

3) The year-on-year change in contract liabilities at the end of 2023 was +107 million yuan to 2,673 million yuan. Contract liabilities at the end of 24Q1 changed +809 million yuan year-on-year to 2,535 million yuan, and 24Q1 advance payments reached a record high in the first quarter.

4) Net operating cash flow in 2023 was 10.648 billion yuan, +28.87% year-on-year. Net operating cash flow for 24Q1 was $4.359 billion, +188.94% YoY.

Profit forecasting and valuation

We are optimistic about the continuation of performance growth under structural optimization and improved channel price management capabilities. We expect the company's revenue growth rates to be 20.02%, 20.13%, and 16.32% from 2024 to 2026; net profit growth rates to mother will be 22.16%, 20.23%, and 18.10%, respectively; EPS will be 10.99, 13.22, and 15.61 yuan respectively; PE will be 16.93, 14.08, and 11.92 times, respectively, maintaining the purchase rating.

Risk warning: Consumption recovery falls short of expectations; price increases fall short of expectations; Guojiao sales fall short of expectations.