Report summary:

The company implemented the Huijishan Lanting Dual Brand Dual Division operation strategy. In the context of industry contraction, performance resilience was demonstrated, and the inflection point of management improvement was evident. As one of the two leading enterprises in the rice wine industry, the company still achieved steady growth under the overall contraction of the rice wine industry. In 2023, the revenue growth rate was 15.01%, and its market share continued to increase. The company is currently reorganizing its product system, with Huijishan and Lanting as the core to promote the upgrading of mass consumption and entry into high-end business scenarios. The company is actively changing consumers' stereotype of low-end and traditional rice wine. Since 2018, performance has been under pressure, and an upward inflection point in business has already emerged.

The rice wine industry can be compared to the liquor industry in the past. Against the backdrop of declining industry sales and the clean-up of small and medium-sized enterprises, leading companies have increased their market share and enhanced profitability through product structure upgrades. Rice wine consumption is mainly concentrated in the Jiangsu, Zhejiang and Shanghai regions, and the foreign port market is facing the problems of rice wine enterprises going out of business and shrinking market size. However, the current main price range for rice wine (20 yuan) is only equivalent to the price range of 80-100 yuan for liquor. It is a popular consumer grade, and there is plenty of room for product upgrades. Leading companies have actively sought change in recent years, and are expected to follow the successful experiences of liquor companies in the past and achieve revenue and profit growth through structural upgrades and an increase in the share of high-end products.

With high-end and youthfulness as the two core strategies, the company's long-term growth ceiling is opened up. The company focuses on its “Lanting” brand, using high-end as a breakthrough, and gradually enters weak scenarios such as high-end business through circle marketing and other methods to achieve rapid expansion and open up room for long-term growth in the company's revenue and profit. In addition, the company is also actively promoting the company's rejuvenation and transformation. During the “618” period this year, the company gained popularity with “one smoke a day” sparkling wine, leading the wave of rice wine rejuvenation.

The company's product gross margin continues to rise, sales expenses are rising, and the determination to actively seek change is firm. The company leads the industry in intelligent production, and the gross margin of its products is also significantly higher than that of its peers. With the continuous improvement of the product structure, the gross margin will continue to increase rapidly in the future. The company has increased its investment in sales and greatly expanded its sales team, demonstrating the firm determination of the company to actively seek change. Short-term profit margins are affected by increased sales expenses, etc., and I am optimistic that the company's long-term profit margin will increase.

Investment advice: The company's revenue for 2024-2026 is expected to be 1.595/1.838/2.148 billion yuan, net profit to mother is 0.184/0.225/0.277 billion yuan, EPS is 0.38/0.47/0.58 yuan, corresponding to 2024-2026 PE being 29X/24X/19X, which is covered for the first time, giving the company an “increase in holdings” rating.

Risk warning: Product structure upgrades fall short of expectations, market development falls short of expectations, consumer groups are limited