Description of the event
The company disclosed its 2023 annual report and achieved annual revenue of 10.121 billion yuan, an increase of 16.22%; net profit to mother of 235 million yuan, a year-on-year decrease of 35.78%; net profit after deducting non-return to mother of 179 million yuan, a year-on-year decrease of 46.86%.
Incident comments
The liquor category achieved superior growth, and changes in the category structure put pressure on performance in stages. The annual revenue volume reached the 10 billion level. Revenue increased 16% year over year, and Q1-4 increased 5%, 17%, 13%, and 52%, respectively (partly due to the low base).
By category, liquor/wine/imported spirits/other businesses changed +20.0%/-19.9%/-4.42%/-22.3% year-on-year, compared with the 9.7% year-on-year increase in sales revenue of national liquor products in 2023. The growth rate of the company's liquor category was far superior to that of the industry, showing impressive performance, while the rest of the categories may be affected by fluctuating demand in the segment and are under relative pressure. The company's gross margin for the whole year was 10.75%, down 3.29 pcts year on year. Among them, the gross margin of the liquor category fell 3.73 pct year on year, or mainly due to changes in the structure of the famous wine and fine wine categories. The annual sales expense ratio was 6.44%, a year-on-year narrowing of 0.5 pct. Mainly due to employee remuneration optimization, management/finance expense ratios were 1.79% and 0.27% respectively, which was basically the same as the previous year. Taken together, the net return interest rate for the whole year was 2.32%, down 1.88pct from the previous year.
Simultaneous upgrading of channel products is expected to enhance the company's long-term profitability. In terms of channels, in 2023, the company actively promoted the upgrading of chain stores, developing 201 3.0 stores integrating various scenarios such as wine shopping, tasting, leisure and entertainment, banquets, and cultural exchanges. At the same time, it steadily promoted the online channel layout. E-commerce business revenue achieved a rapid growth of 183%, and the revenue share increased by 7 pcts to nearly 12%. On the product side, based on long-term and stable cooperative relationships with famous wineries, the company has stable quotas for best-selling products from leading brands. During the year, it also successively launched joint models of famous wineries such as “Jinnaishen”, “Gujing Gong · Gu 20 Ice and Snow Collection Edition”, and “Lai Gaohuai Works · Collector's Edition” to enrich the product matrix. At the same time, the company continued to increase the promotion of fine wine, focusing on the star product “Jinrui Tianhe”, and activated market demand for fine wine through circle marketing and “high-end tasting sessions” It is expected to drive a steady recovery in gross margin. It may benefit from a sound channel system that accelerates product circulation and a rich product matrix that broadens the scope of consumer purchases. The number of inventory turnover times reached the highest level in history of 2.66 times, up 0.35 times from 2022. Inventory at the end of the year was 3.35 billion yuan, a slight drop of 75 million yuan from the end of 2022, reflecting the company's good sales situation.
Investment advice: The company adheres to the strategic position of “gold medal service provider for famous wineries” and establishes the foundation of brand credit with a fidelity system and strict management. At this stage, the company already has a high brand awareness. In the future, it will continue to upgrade channels around Huazhi Liquor Store 3.0 stores with diverse scenarios, further optimize the product matrix of high-end fine wines, strengthen the marketing of fine alcohol, reach target customers more effectively, and increase consumption conversion rates. Based on this, we expect the company's EPS to achieve 0.69, 0.84, and 0.97 yuan in 2024-2026, corresponding PE valuations of 26.4, 21.7, and 18.8 times, respectively, to maintain a “buy” rating.
Risk warning
1. Weak consumer income expectations may cause alcohol consumption scenarios such as business banquets and dining parties to shrink; 2. The rapid iteration of consumer demand makes it difficult to grasp the direction of alcohol demand, leading to a decrease in sales conversion efficiency.