Key points of investment:
The 100 billion light-bottle wine market has broad scope for development. According to Huajing Industry Research Baijia, the size of the light-bottled wine industry was +9.3% year-on-year to 98.8 billion yuan in 2021, and the CAGR in 2016-21 was 14.3%. The China Liquor Industry Association expects the future growth rate of the industry to remain between 15% and 30%, and the market size will exceed 150 billion yuan in 24 years. We believe that the industry is expected to rise rapidly in volume and price: volume: high cost performance advantages are prominent, and the consumption scenario continues to expand.
Price: Per capita disposable income continues to rise, and a younger consumer group drives quality consumption. The competitive landscape of the industry is scattered, and Niulanshan is the absolute leader. In 2020, the market share of Niulanshan was 14%, and the share of Bofen/Xiaolangjiu/Luzhou Laojiao Erqu/Xiaocun/Old Village Chief/Red Star Erguotou was 6%/5%/3%/2%/2%/2%, respectively. The new national standard was officially implemented in June '22, which is expected to accelerate the increase in industry concentration.
A leader in the low-end liquor industry, product upgrades are steady and far-reaching. White Bull 2 is the core single product, with sales volume of 246,400 kiloliters in 23 years (accounting for 67.2%). The terminal gross margin is higher than that of competitors. Currently, it is the leading brand at a price of 15 yuan. In '24, the company raised the price of 4 types of Niulanshan aged wine. The price increase was 6 yuan/box, which is expected to further increase the company's profit margin. Under the new national standard, a new solid, gold-grade aged product was launched, and continued to be promoted through the “trinity, two principles” marketing approach, and a strong terminal network has laid a good channel foundation. The company plans to make gold standard aged wine the largest single product with pure grain bottled wine at a price of 30-40 yuan, with a target sales volume of 15 million boxes over 25 years. The company continues to make efforts to upgrade its product structure and launch new products such as refined aged wine, precious aged wine, and Niulanshan No. 1, further enriching the light-bottled wine product matrix.
The provincial market is intensively cultivated, and expansion outside the province continues to be promoted. The company uses a large-scale commercial model. The Beijing region cooperates with Creative Hall, Chaopi Shuanglong, Jingliu, Shousen, etc., and dealers have strong control. The foreign port region has set up offices in key markets, and market expansion is carried out mainly by large regional merchants, which helps the company quickly fill the gap in the market. The company continues to expand markets outside the province, achieving a shift from nationalized expansion to in-depth market development through “deep distribution”; promoting the construction of model market groups and connecting them to form regional radiance. In recent years, the share of revenue from outside the province has shown an upward trend, rising from 32.4% in 2015 to 59.2% in 23.
The entire meat industry chain is laid out, and non-main businesses continue to be divested. The company's pork business has formed a full industry chain layout, which helps reduce the impact of price fluctuations in the pork market. The sales area is mainly Beijing. In '24, the company will promote pig breeding and sales, deep processing, cooked food, etc., to further enhance the operating effect of the pork business. Among them, the pig breeding business is carried out under the small store brand, which sells about 200,000 heads a year. The slaughter business is mainly raw meat products. The company is focusing on upgrading the product structure. The actual slaughter volume for 20 years was 1.023,300 heads. The company focused on the main alcohol and meat business and gradually divested other businesses. In 15-17, it divested businesses such as the seed industry, seedlings, agricultural market, and water conservancy construction respectively. Real estate elimination efforts have been stepped up over the past 20 years, and the Shunxin Jiayu subsidiary was successfully publicly listed and transferred in '23. We believe that with the divestment of the real estate business, the company will continue to focus on its main business, and it is expected to reduce the burden and start again in the future.
Profit forecasting and investment advice. We expect Shunxin Agriculture's revenue in 2024-26 to be 108.34, 119.20, and 12.999 billion yuan, respectively, +2.3%, +10.0%, and +9.0%, respectively; net profit to mother is 521, 7.39, and 925 million yuan, respectively; EPS is 0.70, 1.00, and 1.25 yuan/share, respectively. The company is a leader in the low-end liquor industry, and the liquor business is the core source of profit. We gave the company's liquor business 18-22 times PE in 24 years, corresponding to a reasonable value range of 19.14-23.39 yuan. The first coverage gave it an “better than the market” rating.
Risk warning. Competition in the industry has intensified, sales of new products fall short of expectations, risk of swine price fluctuations, and food safety issues.