Forge ahead for decades, and start a new journey of entrepreneurship for the second time. Looking back at Wuliangye's historical journey, at the end of the last century, the company achieved rapid expansion with the “OEM+ Big Business” model. After ten years of rapid development, the company gradually solved problems such as dilution of brand power caused by this model. In '17, the company proposed starting a second business, and product channel reforms were revitalized. ① From the product side, the company is gradually improving the high-end price band layout to achieve flexible distribution of intergenerational series; ② From the channel side, the proportion of high-margin direct sales channels continues to increase. The company realizes C-side empowerment through digitalization, accelerates the transformation and upgrading of specialty stores, and vigorously develops group buying & new retail channels; ③ From the market side, the company has achieved “horizontal specialization and vertical flattening” through marketing organizational changes. The western base market is still expanding rapidly; ④ From the financial side, the company's gross margin is lower than the main competition, and there is still plenty of room for improvement in profitability. Concurrent sales revenue Highlight the stability of performance.

High-end liquor continues to expand, and the trend of consumption upgrading continues. In the long run, the high-end liquor market base is stable, with high-net-worth individuals as the main consumer group. According to the Forward-looking Industry Research Institute, it is estimated that the high-end liquor market will be about 18% CAGR in 15-23, the high-end liquor market size will be about 188.9 billion yuan in 23, and the price band of 1,000 yuan will be about 100 billion yuan. Among them, Pu 5 has a stable leading position in the 1,000 yuan price band, with a market share of about 50%, supporting healthy price market operation with strong brand power and channel power.

Volume control boosts the five general values, and multi-level volume distribution guarantees a steady increase in performance. We believe that the company's future performance will mainly have the following growth points: ① Maotai's price increase opens up price space, and Pu 5 consolidates its dominant position of 1,000 yuan. In February '24, while following Pufei's slight price increase, Pu 5 was firm in its annual price control strategy (20% reduction) & added quarterly incentives to increase channel profits & promote the return of P5's value. At the same time, the company highlighted the quality-price ratio in the 1,000 yuan price range with strong brand power, and has shown strong marketing capabilities since this year; ② A diversified product matrix was formed, and 1618 & was gradually expanded at a low level. In '24, Wuliangye clearly skewed the planned volume of new products in favor of products such as 1618, low-grade Wuliangye, and launched all of the classic Wuliangye products, which meant that the company would shift from focusing on large core products to diversified product matrices to drive growth. Through differentiated positioning & establishment of special core product operation classes & increased investment in new product marketing, it was possible to block competitors such as Guojiao and build a new growth curve in the future; ③ Focus on terminal marketing and marketing, and continue to strengthen C-side construction. The company has set 24 as the “marketing execution year”. Expense investment, channel construction & marketing target terminal consumer groups, boost demand under the slowdown in macroeconomic growth, and accelerate terminal sales to ensure the healthy operation of the distribution system.

Profit forecast: Currently, the company's valuation level is at a historically low level, and the company's dividend ratio continues to rise. We expect a considerable return on investment in the future. We expect the company to achieve revenue of 92.6/102.3/112.6 billion yuan in 24-26 (up 11%/10%/10% year on year) and net profit to mother of 33.9/37.6/41.6 billion yuan (up 12%/11%/11%), respectively. The corresponding PE is 17X/15X/14X.

Considering the strong potential of the product matrix with Pu 5 as the core, we are optimistic about the company's future development. Through a comparable valuation method, we will give 21X PE in 24 years, with a target price of 183 yuan/share, maintaining a “buy” rating.

Risk warning: weak demand in the liquor market; food safety risks; 1618 and low levels of Wuliangye's growth falling short of expectations; risk of stock price changes.