Incidents:
23 Annual Report: The company released the 2023 Annual Report and the 2014 Quarterly Report. In 23, it achieved revenue of RMB 30.233 billion, +20.34% year on year; net profit to mother of RMB 13.246 billion, +27.79% year on year; net profit after deducting non-return to mother of RMB 13.150 billion, +27.41% year over year. Among them, 23Q4 achieved revenue of 8.291 billion yuan, +9.10% year over year; net profit to mother of 2,680 billion yuan, +24.78% year over year; net profit after deducting non-return to mother of 2,661 billion yuan, +23.50% year over year.
24Q1: Achieved revenue of 9.188 billion yuan, +20.74% year over year; net profit to mother of 4.574 billion yuan, +23.20% year over year; net profit without return to mother of 4.552 billion yuan, +23.41% year over year.
24-year goal: Strive to achieve a year-on-year increase in revenue of at least 15%.
Report analysis: The annual report performed well in '23, and the 24Q1 contract debt increased year-on-year. Cash repayments in '23 were $31,589 million, higher than the revenue growth rate (+20.34%), and the sales return rate was 104%, of which 23Q4 cash payments were $3,945 million, -28.84% YoY, lower than the revenue growth rate (+9.10%); contract liabilities were $2,673 million, +107 million yuan/month-on-month. Cash revenue in 24Q1 was approximately $10.641 billion, +32.31% year over year, higher than the revenue growth rate (+20.74%), and the sales return rate was 116%. The contract debt was about 2,535 billion yuan, +809 million yuan/month-on-month - 138 million yuan.
Key points of investment
23 years have come to a successful conclusion, and traditional channels are outstanding. In '23, the company achieved revenue of 30.233 billion yuan, +20.34% year-on-year (of which Q1: +20.57%; Q2: +30.46%; Q3: +25.41%; Q4: +9.10%).
1) By product, 23 high-end liquors and other liquors achieved revenue of 268.41/32.36 billion yuan respectively, +21.28%/+22.87% YoY, sales volume +1.24% YoY, and tonnage price +19.79% YoY, mainly due to improved product structure and price increases for the Gujiao series. The gross profit margin for 23 years was 88.30%, +1.71 pct year on year, mainly due to product structure optimization leading to an increase in tonnage prices.
2) By channel, traditional channels/emerging channels achieved revenue of 286.57/1,420 billion yuan respectively in 23 years, +22.98%/-2.97% year-on-year, with impressive growth in traditional channels. At the end of '23, the total number of dealers in the company reached 1,710, a net increase of 7. In '23, the company has been methodically promoting work such as the Spring Thunder Campaign and the Autumn Harvest Plan. In '24, the company determined the construction goals of the “1110,000” Double 124 Project, and continued to promote the deepening of the regional market and the expansion and quality of channel terminals.
Cost efficiency is continuously optimized, and profitability is improved. The sales/management expenses rates for 23 years were 13.15%/3.77%, respectively, -0.58/0.86pcts. The annual cost rate was relatively stable but the marketing structure changed. The advertising/promotion expenses in sales expenses were -14.15%/+107.62%, respectively. Taken together, the net interest rate returned to mother in '23 was +2.56pct year-on-year to 43.81%. The increase in profitability was mainly due to improved gross margin and cost investment optimization.
24Q1 business analysis: 24Q1 achieved revenue of 9.188 billion yuan, +20.74% year over year; gross margin was +0.28pct year over year to 88.37%, and Q1 continued to perform well. The 24Q1 sales/management expenses ratio was 7.85%/2.49%, respectively, -1.23/ -0.79pct compared to -1.23/-0.79pct, and cost efficiency continued to be optimized. The net profit margin for 24Q1 was +0.99pct year-on-year to 49.78%, and profitability increased slightly.
24-year outlook: fine channel control and flexible, empowered by digital marketing. 1) Volume: The company's dual brands continue to gain strength. The high Guojiao brand is strong, and the low-level Guojiao brand has formed a strong atmosphere in many places; the Luzhou Laojiao series has sufficient potential to develop brands such as Cellar Age and Specialty, and continues to gain strength with products at multiple prices. 2) Price: The company's channel control is precise and cost investment is flexible. The launch of the five-code related system is expected to further improve the cost efficiency investment ratio. The pace of product launch and channel profit distribution are refined, and the price market is expected to gradually increase. 3) Marketing: The company's marketing activities and cost plans will be formulated around digital code scanning, which is expected to accurately reach consumers and promote sales and bottling. We expect that the company's cost efficiency optimization will further improve and drive profitability.
Medium- to long-term outlook, clear brand planning, and sufficient potential for regional expansion. At the product level, the company continues the “double brand, three product line” strategy. On the one hand, the Guojiao brand firmly promotes high-end, focusing on consumer construction and emphasizing interactive consumer experiences; on the other hand, the Luzhou Laojiao brand further improved its product matrix. During Chuntang in '24, the company released the Cellar series and Tianfu Granary series products to strengthen the mass price range. At the regional level, the current distribution of companies in the national market is uneven, and they will continue to build a strong foundation to build granaries. Implement the “drilling project” to firmly build a strong market, while focusing on expanding weak markets to explore growth space; secondly, according to the actual situation in each market, the “one city, one policy” promotes the “100 cities plan” and sinks into district, county, and township markets. Furthermore, the company is currently strengthening team reserves and promoting the construction of projects such as cultural industrial parks and membership systems to lay a solid foundation for further strengthening brand awareness and consumer cultivation.
Investment advice: In the short term, the company's channels operate in a refined manner, and volume and price growth can be expected. On the one hand, the company's core products already have strong brand power and consumer atmosphere, and continue to gain strength at multiple prices; on the other hand, with digital empowerment, the company has fine channel management and control, and emphasis is placed on consumer cultivation. Looking at the medium to long term, the Guojiao brand is firm in its high-end strategy, and the Luzhou Laojiao brand has perfected its product matrix; regional companies have a strong foundation to build granaries, and growth potential can be expected. We forecast the company's revenue for 24-26 to be 36.3 billion yuan, 42.9 billion yuan, and 49.9 billion yuan, up 20.2% year-on-year; net profit to mother was 16.2 billion yuan, 19.4 billion yuan, and 22.8 billion yuan, up 22.0%, 20.0% and 17.6% year-on-year respectively, EPS was 10.98 yuan, 13.17 yuan, 15.48 yuan, and corresponding PE was 16.6X, 13.8X, and 11.8X, respectively. The first coverage gave a “buy-B” recommendation.
Risk warning: macroeconomic recovery falls short of expectations, increased market competition, food safety risks, etc.