Incidents:
The company released its annual report for the year 23 and the quarterly report for '24, and achieved revenue of 83.272 billion yuan, +12.58% year on year; net profit to mother of 30.211 billion yuan, +13.19% year over year; net profit after deducting non-return to mother of 30.116 billion yuan, +12.96% year over year.
Among them, 23Q4 achieved revenue of 20.736 billion yuan, +14.00% year over year; net profit to mother of 7.378 billion yuan, +10.07% year over year; net profit after deducting non-return to mother of 7.375 billion yuan, +11.01% year over year.
24Q1 achieved revenue of 34.833 billion yuan, +11.86% year over year; net profit to mother of 14.045 billion yuan, +11.98% year over year; net profit after deducting non-return to mother of 14.039 billion yuan, +12.71% year over year.
24-year target: Continued steady double-digit growth in total revenue.
Statement analysis: Cash repayments in '23 billion yuan, +28.84% year over year, higher than revenue growth rate (+12.58%), sales revenue rate 127%, of which 23Q4 cash repayment was 38.532 billion yuan, +17.67% year over year, higher than revenue growth rate (+14.00%); contract liabilities were 6.864 billion yuan, year-on-year - 5,515 billion yuan/month-on-month +2,916 billion yuan. 24Q1 cash revenue was approximately RMB 21.769 billion, or -23.98% YoY, lower than the revenue growth rate (+11.86%), and the sales revenue rate was 62%. The contract debt was approximately RMB 5,047 million, year-on-year - 488 million yuan/month-on-month - RMB 1,817 billion.
Key points of investment
Revenue grew steadily, and gross margin performance was stable. In '23, the company achieved revenue of 83.272 billion yuan, +12.58% (of which Q1: +13.03%; Q2: +5.07%; Q3: +16.99%; Q4: +14.00%). The company's gross margin in '23 was 75.79%, +0.37pct year-on-year.
1) By product, Wuliangye products/other alcohol products achieved revenue of 62,804/13.643 billion yuan respectively in '23, or +12.84%/13.05%. Among them, the sales/tonnage price of Wuliangye products was +17.98%/-3.80%, respectively. We expect the accelerated release of products such as low-grade Wuliangye products.
2) By channel, the 23-year distribution/direct sales model achieved revenue of 459.85/30.462 billion yuan respectively, +13.56%/+12.53% year-on-year, with direct sales accounting for nearly 40%. In '23, 26,000 new core terminals were added, and the number of specialty stores exceeded 1,600.
Rates are relatively stable, and profitability is rising steadily. The sales/management expense ratio for 23 years was 9.36%/3.99%, respectively, +0.11/-0.16pct, respectively. The overall cost rate was stable. The 23Q4 sales expense ratio was +2.26pct year-on-year to 7.57%, mainly because the company increased its expenditure efforts at the end of the year. Taken together, the net interest rate returned to mother in '23 was 36.28%, +0.20pct year on year, and profitability increased steadily.
24Q1 business analysis: The 24Q1 company achieved revenue of 34.833 billion yuan, +11.86% over the same period. We expect steady demand for core products, Pu 5, during the peak season of the Spring Festival, to achieve a smooth start. 24Q1 gross profit margin was 78.43%, year-on-year +0.03pct, sales/management expense ratios were 7.53%/3.06%, respectively, and +0.75pct/-0.47pct year-on-year. Expense ratio control was good.
Net profit margin for 24Q1 was 40.32%, +0.04pct year over year.
24-year outlook: The volume and price strategy is clear, and management and operation are more pragmatic. 1) Price: On February 5, the company adjusted the price of the eighth-generation Wuliangye core product. The factory price for a single bottle was raised from 969 yuan to 1,019 yuan; secondly, the company is currently stepping up efforts to rectify low-priced items on e-commerce platforms. 2) Volume: The company proposed a plan to reduce traditional channels by 20% in 24, while adjusting products, channels and market structures. Demand for the core single product Eighth Generation Wuliangye is resilient. 1618 and low-grade Wuliangye are growing at an impressive rate under the code scanning red envelope policy. The product style is gradually maturing, and the growth potential is expected to continue; products such as classic Wuliangye and cultural wine can also contribute to the increase. 3) Management: The company positions 24 years as a marketing execution year to implement “focus on sales, stabilize prices, improve cost efficiency, and change work style”. The company optimizes cost investment, strengthens channel value chain maintenance, and channel confidence has been restored; in addition, the company continues to optimize channel layout and promote coordinated multi-channel development of traditional, direct management, and emerging channels.
Medium- to long-term outlook: Product layout is clear and brand value continues to rise. The company improved the 1+3 product system and added 45 and 68 degrees of Wuliangye to further enrich the flank product matrix and supplement the price range. The company implements the “three strengthening and one stability” strategy for classic Wuliangye, and is expected to establish a brand franchise company to carry out brand promotion and consumer cultivation activities to help restore Wuliangye's brand value. We expect that the rich product line will meet the differentiated needs of consumers, ease the pressure to increase the volume of reliance on core products, and further promote the return of Wuliangye brand value.
Investment advice: In the short term, the company's pricing strategy is clear. On the one hand, the factory price of the core product Eighth Generation Wuliangye was raised by 20 yuan, while moderately reducing traditional channel sales to control prices; on the other hand, products such as 1618 and low-grade Wuliangye can also contribute to the increase. Second, the company is expected to further restore channel confidence by optimizing cost investment and strengthening channel value chain construction. In the medium to long term, the company's product layout is more comprehensive, and performance growth is more supportive in the context of a rationalized volume-price relationship and a return to brand value. We forecast the company's revenue for 24-26 to be 92.5 billion, 103 billion yuan, and 114.1 billion yuan, respectively, up 11.1%, 11.3% and 10.8% year-on-year, net profit to mother of 33.9 billion, 38.3 billion yuan, and 42.9 billion yuan, up 12.3%, 12.9%, and 12.0% respectively. EPS was 8.74, 9.87 and 11.05 yuan respectively, and corresponding PE was 17.3x, 15.3x, and 13.7x, respectively. The first coverage gave a “buy-B” recommendation.
Risk warning: Macroeconomic recovery fell short of expectations, market competition intensified, price increases for core products fell short of expectations, and major management flaws in the company.