Incidents:

The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 83.272 billion yuan, an increase of 12.58% over the previous year, and achieved net profit of 30.211 billion yuan, an increase of 13.19% over the previous year.

24Q1 achieved revenue of 34.833 billion yuan, a year-on-year increase of 11.86%, and realized net profit to mother of 14.045 billion yuan, an increase of 11.98% year-on-year.

Revenue profit is in line with expectations

23Q4 achieved revenue of 20.736 billion yuan, a year-on-year increase of 14.00%, and realized net profit to mother of 7.378 billion yuan, an increase of 10.09% over the previous year. 23Q4+24Q1 achieved revenue of 55.569 billion yuan, up 12.65% year on year, and realized net profit to mother of 21.423 billion yuan, up 11.33% year on year. Revenue profit is in line with expectations. 24Q1's contract liabilities were 5,047 billion yuan, a year-on-year decrease of 8.82%, a decrease of 1,817 billion yuan compared to 2023, and 24Q1 (revenue+delta contract liabilities) of 33.016 billion yuan, an increase of 35.89% year-on-year. 24Q1 sales revenue was 21,769 billion yuan, a year-on-year decrease of 23.98%, or the high base figure was mainly due to the previous year's cash payment subsidy.

Wuliangye's growth rate in 2023 was higher than that of other liquors. The dominant regions showed impressive performance. In 2023, the company's alcohol products achieved revenue of 76.447 billion yuan, an increase of 13.15% over the previous year. By product, the growth rate of Wuliangye products is higher than that of other alcohol products. In 2023, Wuliangye products achieved revenue of 62.804 billion yuan, an increase of 13.50% over the previous year, of which sales volume/tonnage price were +17.98%/-3.80% respectively. We expect sales to grow faster than P5, mainly due to 1618 and low sales volume. Other wine products achieved revenue of 13.643 billion yuan, a year-on-year increase of 11.58%, of which sales volume/ton price were +27.60%/-12.56% respectively. Wuliangye's share of revenue increased 0.25pct to 82.15%. Looking at the subregions, dominant regions such as the east, west, and central regions performed well. In 2023, the company's east/ southern/ west/ northern/ central regions achieved revenue of 223.89/68.10/262.15/80.74/12.958 billion yuan, +17.92%/-8.97%/+21.71%/-4.04%/+16.30%, respectively. In 2023, the total number of dealers reached 3,384, an increase of 240 over the previous year, of which the number of Wuliangye dealers reached 2,570, an increase of 81 over the previous year; the number of Wuliang Incense dealers reached 814, an increase of 159 over the previous year. As of the end of 2023, the number of the company's specialty stores also increased, to a total of 1,662, an increase of 32 over the beginning of the year.

Profitability is growing steadily

In 2023, the company's gross profit margin was 75.79%, up 0.37pct year on year, and the net profit margin to mother was 36.28%, up 0.20pct year on year. The sales/management/ operating tax and additional ratios were 9.36%/3.99%/15.05%, respectively, +0.11/-0.16/+0.52 pct, respectively. The 24Q1 company's gross profit margin was 78.43%, up 0.04pct year on year, and the net profit margin to mother was 40.32%, up 0.04pct year on year. The sales/management/operating tax and additional ratios were 7.53%/3.06%/13.95%, respectively, +0.75/ -0.46/ -0.37pct, respectively. We judge that the moderate increase in gross margin is mainly related to 1618, slow growth, and increased turnover.

Profit Forecasts, Valuations, and Ratings

We expect the company's revenue for 2024-2026 to be 927.05/1026.31/112.929 billion yuan, respectively, with year-on-year growth rates of 11.33%/10.71%/10.03%, net profit to mother of 336.63/373.05/41,167 billion yuan, respectively, 11.43%/10.82%/10.35%, EPS 8.67/9.61/10.61 yuan/share, and 3-year CAGR of 10.87%. In view of the company's consolidation and steady development trend, 1618, low-grade new products and cultural and creative wines have increased. Referring to comparable company valuations, we gave the company 20 times PE in 2024, with a target price of 173.4 yuan, maintaining a “buy” rating.

Risk warning: Liquor consumption power declines; industry competition intensifies; product structure upgrades fall short of expectations