Incident: On June 25, the company issued an announcement to establish Kunming Dongpeng Vitamin Drink Co., Ltd. to invest in the Kunming production base project, with a total investment of 1 billion yuan and a construction period of 24 months.
Continue to deepen the southwest market and strengthen the sustainability of specialty drink growth. The nationalization of specialty drinks is the main driving force for the company to maintain high growth. Currently, the southwest region accounts for only about 10% of the company's overall revenue (2023), which is not only lower than the domestic market in Guangdong Province, but also lower than the East China and Central China markets, which are also in the same growth stage. The Southwest region has a large population and a relatively large market. Furthermore, the production capacity of the Chongqing subsidiary is also under certain pressure (capacity utilization rate of about 93% in 2023). We believe that the establishment of the Yunnan base is beneficial to increasing local market share, and on the other hand, it can improve transportation efficiency and reduce transportation costs. In the long run, it is expected to strengthen the sustainability of the growth of large specialty drink products.
Or use the advantages of Yunnan agricultural products to create a multi-category beverage matrix. The second growth curve is another important driving force for the company to become one of the top 5 beverages in the country. Currently, the company is focusing on building 6 new categories, including Pengyou Tea and Dongpeng Dacao. In addition, it is also storing juice products such as rapeseed. Judging from domestic and international experience, compared with categories such as carbonated beverages, tea, coffee, and juice are expected to achieve differentiated competition and establish product barriers on the raw material side. However, as an important producer of coffee and tea in China, Yunnan is at the leading level of production and quality. We believe that the Yunnan base can make full use of the advantages of the local supply chain to enhance the product capabilities of ready-to-drink tea, coffee, and juice, thereby helping the multi-category beverage group achieve its strategic goals.
The 24Q2 boom is expected to continue. Special drinks are booming and hydrating will increase volume. It is expected that 24Q2's performance will continue to increase, mainly due to: 1) the high cost performance advantage will continue; 2) the national temperature is higher than the same period of the year, and the impact of rainy weather in South China on sales is limited; 3) the pace of network development is fast; 4) “Replenish Water” continues to perform well under multiple factors such as rapid network development+product matrix expansion+promotional support, breaking through the peak sales value of 120,000 boxes in May. Judging from the monthly pace, combined with weather factors, the company's fiscal year nodes and base pressure, the growth rate is expected to slow slightly in June but remain at a high level. In July-August, with the temperature recovery in South China and the reduction in rain, sales are expected to accelerate month-on-month. Overall, it is safe to complete the 24-year target.
Investment advice: Net profit from 2024 to 2026 is expected to be 27.3/34.5/4.32 billion yuan, respectively, +33.8%/26.4%/25.3%, EPS is 6.8/8.6/10.8 yuan, corresponding PE is 32/25/20X. The certainty and growth of the company's performance is scarce. The short-term focus is on the catalytic effects of peak season marketing on stock prices. Further space needs to be paid attention to the company's long-term outlook and maintain the “recommended” rating after the end of 24H1.
Risk warning: risk of increased competition in the industry, risk of new product performance falling short of expectations, food safety risks.