Description of the event
The company released its 2024 quarterly report. In the first quarter, it achieved operating income of 4.13 billion yuan, an increase of 10.4% over the previous year, and achieved net profit of 130 million yuan to mother, an increase of 28.2% over the previous year.
Incident comments
Gross margin improved in the first quarter, and performance grew faster than revenue. The company achieved revenue of 4.13 billion yuan in the first quarter of 2024. After reaching the 10 billion level of revenue in 2023, revenue in a single quarter reached a record high, or mainly benefited from the acceleration in sales of famous wine categories during the Spring Festival and the continued increase in revenue from fine wines. The gross margin for the single quarter was 10.48%, up 0.21pct year on year, 0.84pct month-on-month, and gross profit reached 430 million yuan, up 12.7% year on year. Sales expenses in the first quarter were reduced by 8.16 million yuan year-on-year, or mainly due to optimization of employee remuneration expenses. However, in 2023, the company further promoted refined regional management, promoted sales to reach the first-tier market, and selected more than 100 backup marketing backbone internally, so that while optimizing team dynamics, human efficiency improved. Management expenses decreased by 3.41 million yuan year on year in the first quarter, and financial expenses were basically the same year on year. Operating profit (gross profit - operating tax - three fees) reached 167 million yuan, an increase of 53.07 million yuan over the previous year. The net interest rate to mother was 3.14%, an increase of 0.44 pct year on year. Overall, the company achieved good growth on the revenue side during the peak alcohol sales season in the first quarter. The gross margin driven by fine wine improved year-on-year and month-on-month. Combined, the company's strict control of expenses made net profit to mother grow faster than revenue in the first quarter, and achieved a good start in 2024.
Store expansion and upgrading go hand in hand, and continue to enrich the product matrix. The company is deeply involved in the marketing and distribution of fine wines, and adheres to the differentiated brand positioning of “a gold medal service provider for famous wineries”. With “quality, fidelity, service and innovation” as the core concept, the company is currently in the stage of channel upgrading and expansion and gradual improvement of the product matrix. On the channel side, in 2023, the company insisted on closely linking core cities and simultaneously expanding the bottom market. Huazhi Liquor Store flagship stores have successively landed in Beijing, Shanghai, Guangzhou, Changsha, Hefei, Haikou, Suzhou, Qingdao, Ningbo, Kunming, Dalian and other cities. At the same time, 201 3.0 stores have been developed throughout the year, and the quality, area and image of the stores have improved markedly. During the spring sugar season in the first quarter, the company had marketing campaigns at Chengdu's double airports, commercial landmarks, and business centers, increasing brand exposure and strengthening brand potential again. On the product side, the company continues to increase its marketing efforts for fine wines and focus more on the promotion of strategic products. It has set up the Jinrui Project Department and the Lai Gaohuai Project Department to accurately market key products. In 2023, the company 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 continue to enrich the product matrix.
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 25.9, 21.4, and 18.5 times, respectively, maintaining 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.