Incidents:
The company released the 2023 annual report and the 2024 quarterly report, and achieved revenue/net profit of 14.213/645 million yuan in 23, an increase of 7.66%/83.02% over the previous year. 23Q4 achieved revenue of 17.97/net profit of 311 million yuan, a year-on-year decline of 4.41/2.78%, respectively. 24Q1 achieved revenue of 3,587 billion yuan, a year-on-year increase of 1.72%, and net profit to mother of 103 million yuan, an increase of 58.90% year-on-year. The results are in line with market expectations.
Investment summary:
The sales volume and price of beer increased rapidly, U8 sales increased by more than 36%, and the revenue growth of mid-range and high-end products was relatively good. The company achieved annual revenue of 13.098 billion yuan for beer, an increase of 7.51% over the previous year. In terms of volume and price breakdown, sales increased 4.57% year on year to 3.9424 million kiloliters, faster than the industry's growth rate, and the volume increase performance was impressive. Among them, U8 sales increased by more than 36% (390,000 kiloliters in '22 and 530,400 kiloliters in '23), and the high-end process continues. The tonnage price increased by 2.82% year-on-year to 3322.45 yuan/kilolitre. The revenue of high-end products increased by 13.32%, the revenue of ordinary products decreased by 2.33%, and the share of high-end products in the structure increased by 3.40 pct to 66.26%. Single 23Q4 sales fell 2.39%, which is expected to be mainly affected by the off-season sales pace and marketing adjustments in some markets.
By strengthening market cultivation and continuing to cultivate regional advantages, non-core entities have significantly reduced losses. The company has continuously strengthened Yanjing's nationalized main brand position, taken into account the nationalization and regionalization of the brand system, and established a multi-gradient brand portfolio with Yanjing, Liquan and Huiquan. Promoting the big single product strategy, U8's core strategic position is stable. The focus is on expanding catering channels, deepening KA market management, strengthening the global e-commerce layout, developing new channels, and increasing the layout of nighttime channels. Continue to implement the “100 County Project”, develop advantageous regional and county markets, and strengthen the standardized operation of marketing operations. There was a net increase of 261 to 8534 dealers throughout the year. Traditional/KA/e-commerce channel revenue increased 7.69%/4.62%/4.81%, respectively. Among them, KA/e-commerce channel gross margin increased 4.90 pct/2.43 pct year on year, traditional channel gross margin increased 0.21 pct, and the annual beer business gross margin increased 0.45 pct to 38.89% year on year. The company disclosed that the net profit of its main subsidiaries, Guilin Liquan/Fujian Yanjing Huiquan, increased by 28.38%/21.85% respectively in 23 years, which translates into losses of 96.15 million yuan for other entities, a significant decrease from the loss of 227 million yuan during the same period.
The cost of raw and auxiliary materials and comprehensive tonnage of beer increased, and the increase in tonnage prices led to a 0.45 pct increase in beer gross margin over the same period last year. The cost of the beer business increased 2.07% year-on-year in '23. Among them, the cost of raw and auxiliary materials increased more than revenue growth, the share of operating costs increased, and the pressure on raw and auxiliary material costs increased. Production personnel were reduced by 1,798 in '23, and labor costs for beer decreased by 14.27% year on year, accounting for 2.63 pcts to 10.77% of operating costs. The sales/management expense ratio in '23 was -1.29/+0.70pct, respectively, and the gross sales margin increased 1.48pct year over year. Sales cost savings and higher tonnage prices supported the company's net profit margin to increase by 1.85pct to 6.01% year on year. The company's net profit margin base for the same period was low, and increased profitability contributed significantly to the company's annual net profit flexibility. This logic is expected to continue to be reflected in the future.
24Q1 cost savings and increased gross profit, deducted high growth in non-net profit, and the reform process continued. 24Q1 revenue increased by 1.72%, and the growth rate is expected to slow down. It is expected to be mainly affected by the high base for the same period. The quarterly operating pace will not change the company's potential. U8 sales and new product sales during the peak season are expected to accelerate sales. 24Q1 gross margin increased 0.40pct year over year to 37.18%. It is expected that the product structure will continue to be upgraded and costs will also improve.
The 24Q1 sales expense ratio decreased by 0.57 pct to 11.93% year on year, and the net profit margin increased 1.06 pct to 3.61% year on year. It is expected that the subsidiary's loss reduction will continue further. The company proposed the 14th Five-Year Strategic Plan of “Starting a Second Business and Reviving Yanjing”. It has firm confidence in reform. In the early stages, intensive channel cultivation and the cultivation of large individual products are showing good momentum, and the subsidiary's losses have been reduced significantly. Currently, the company's net profit level still has a lot of room for improvement from the industry benchmark. Continued structural upgrades and cost savings are expected to increase the company's profitability. It is expected to continue to contribute to high profit flexibility. I am optimistic that the company's U8-driven product system construction, channel security, and revival campaign and reform effects will release cost pressure.
Investment advice: The company's revenue for 2024-2026 is estimated to be 152.10, 162.20, and 17.273 billion yuan, respectively, with net profit attributable to mother of 906 million yuan, 1.02 billion yuan and 1,470 billion yuan respectively. Earnings per share are 0.32 yuan, 0.43 yuan, and 0.52 yuan, respectively. The corresponding PE is 30.40X, 22.90X and 18.73, respectively, to maintain the “increase” rating.
Risk warning: Product and channel cultivation falls short of expectations, fluctuating raw material prices, food safety risks, etc.