Matters:
Company announcement: Shanxi Fenjiu will hold the 2023 Annual General Meeting of Shareholders on May 17, 2024.
Guoxin Food and Drink Views: 1) The Blue and White 30 · Revival version has been in operation for a long time, and waist products continue to grow. 2) Focus on regulation within Shanxi Province, and markets outside the province adopt differentiated assessments. 3) “Enjoy Rewards” continues to advance, and the stability of the price system continues to improve. 4) Investment advice: Maintaining the previous profit forecast, we expect the company to achieve revenue of 384.7/451.7/51.93 billion yuan in 2024-2026, up 20.5%/17.4%/15.0% year on year; net profit to mother of 131.2/160.6/18.96 billion yuan, up 25.7%/22.4%/18.0% year on year; corresponding to PE 24.5/20.0/17.0X. Considering the company's continued operating potential, the cultivation of the Blue and White 30 · Revival Edition progressed in an orderly manner, maintaining a “buy” rating.
Commentary:
The Blue and White 30 · Revival version has been in operation for a long time. Judging from the business pace, it is expected that 2024 may be a year where the Fenjiu channel in Shanxi makes up for shortcomings and digitally empowered, and 2025 may be a year where the company comprehensively strengthens the cultivation of high-end wine users and sales growth. In the Blue and White 30 Revival Value Expression System, the company may later complete top-level design from the three dimensions of “value re-creation”, “value re-expression”, and “solidification and enhancement”. It is expected that there may be good actions in terms of cultural empowerment and consumer reach. In terms of product divisions, we expect the company to increase the product divisions of Blue and White 20, Blue and White 30, and China Dragon in the future, and achieve an orderly release of the Blue and White 40 · China Dragon by increasing the Blue and White 40 · China Dragon.
In terms of product structure, 2024 was a year of recovery and differentiation in demand. Prices of 100-300 yuan and the mass banquet market showed a clear recovery, thus testing the speed of product restructuring and the ability of wine companies to capture demand. Shanxi Fenjiu uses a multi-category matrix. There are Panama series and Laobaifen series at a price of 100-300 yuan. It is expected that in 2024, the company may strengthen the price advantages of Laobaifen and Panama, replace and upgrade the Laobaifen series in due course, and increase investment in the banquet market.
The focus is on regulation within Shanxi Province, and markets outside the province adopt differentiated assessments. In terms of regional planning, Shanxi Fenjiu, as a national famous wine brand, has strong regional adjustment capabilities. Looking at the pace, we expect that in 2024, the market in Shanxi Province may focus on adjusting the pace and removing inventory to ensure the stability of the basic market in the province; the market outside the province may adopt an aggressive aggressive trend, and then set different growth requirements and market styles according to the maturity of different markets. We believe that the income distribution between regions in Fenjiu, Shanxi is relatively balanced, and can better smooth the overall business pace through the region.
“Fenxiang Rewards” continues to advance, and the stability of the price system continues to improve. In terms of channel reform, the company began to comprehensively promote “Fenxiang Privileges” in November 2023, successively carrying out terminal classification and filing, matching supply relationships, sorting out terminal profit models, and strengthening organizational construction to strengthen manufacturers' ability to manage price lists and terminals. Looking at dealer cooperation, during a period of weak demand recovery and industry adjustment, Fenjiu is a “high-quality supply” with high gross profit and high turnover, and dealers are highly cooperative with channel reform and cost reform. Models of dealer reform may emerge one after another in markets across the country, and the company may have found a new model of manufacturer cooperation, laying a solid foundation for the subsequent full launch of the five-code integration. In terms of price system stability, Shanxi Fenjiu promotes product digitalization and channel digitization in an orderly manner, strongly linking cost investment to code scanning rates, thereby improving cost investment efficiency and ensuring overall price stability.
Investment advice: Fenjiu, Shanxi has entered a stage of high potential energy development, maintaining the “buy” rating and maintaining the previous profit forecast. We expect the company to achieve revenue of 384.7/451.7/51.93 billion yuan in 2024-2026, an increase of 20.5%/17.4%/15.0%; it is expected to achieve net profit of 131.2/160.6/18.96 billion yuan, up 25.7%/22.4%/18.0% year on year; corresponding to PE 24.5/20.0/17.0X. Considering the company's continued operating potential, revival cultivation progressed in an orderly manner, maintaining a “buy” rating.
Risk warning
Increased competition; demand recovery falls short of expectations; policy risks, etc.