Looking back at the past: One of the Golden Flowers of Sichuan Liquor, the Path to Fuxing Shuijingfang, was Quanxing Daqu, one of the Eight Famous Liquors. Together with Wuliangye, Luzhou Laojiao, Jiannanchun, Langjiu, and Tuopai Qu Liquor, the company was restructured after going public in 1999. Diageo gradually entered the market in 2006 and successfully succeeded Quanxing Group in 2011. Shuijing Fang became the only foreign-owned listed liquor company with a total operating income of 5.22 billion yuan in 2024, with a net profit of 1.34 billion yuan yuan. In the history of reviewing the market, the difficulties of high-end development and high fluctuations in performance have always been the two major problems that have plagued Shuijingfang's investment: on the one hand, the company insisted on high-end development, but due to strategic mistakes such as going overseas and not cutting prices during the industry adjustment period, the main price band fell from the high-end to the next; on the other hand, due to the channel being dominated by big merchants and low management stability, etc., the performance of Shuijingfang has fluctuated greatly in history.
Detailed analysis of the present: the next high-end reshuffle, the company consolidates and innovates, and then starts the next high-end price band since 2022, as inventory accumulates and prices fall. The channel clearly changed from heat to cold, and relied on investment flow to obtain rapid growth in performance. Currently, there is a high degree of certainty about improving the high-end price band in the medium term, and wine companies with advanced inventory cycle adjustments and internal operation optimization are expected to be the first to reverse; in the long run, the “brand+channel model” growth model will gradually change to a “brand+advanced operation model” growth model, and finding ways to guarantee the interests of all aspects of the channel and good consumer cultivation has become a top priority in market share competition. Shuijingfang took the initiative to remove and adjust earlier than other wine companies; the product side has added the layout of high-tier popular wines, and the price band coverage is more comprehensive; the new and old generation models are parallel in terms of channels to adapt to the pace required by the industry; the marketing side continues to hold high standards to grasp consumer mentality; and it is expected that a new round of growth will begin in the future.
Exploring the future again: Focus on Gemini, the promotion of high-end production and determination to create the Gemini Star Group. No. 8 occupies an ecological position in the core price range of sub-high-end wine and has the potential for continuous expansion. It is the company's “cash cow”. Jingtai's layout has the potential to upgrade the price range. The space is huge. The combination of the two has both offense and defense, and is full of tension. The company's largest shareholder, East Asia Geo, is an international spirits leader. Shuijing Fang is defined as the “Super Premium +” level within Diageo, and is an important gripper for its development in the Asian region. Shuijing Fang's revenue in 2023 is only 3.3% of Diageo. It is expected that the majority shareholders are firm and patient with Shuijing Fang's high-end goals; the establishment of a high-end sales company is expected to follow the successful path of Naisen Sales Company and Guojiao Franchise Company in the future. Under the optimization of the channel model, the improvement of the product structure, and the fuller optimization of the production capacity layout, fluctuations in Shuijingfang's performance are also expected to subside and achieve stable overall growth.
The bottom line is being adjusted, the potential is still sufficient, and we are looking forward to a breakthrough
Since 2023, Shuijing Fang has been focusing on cleaning up early inventory and sorting out the company's internal and external conditions. It has now resumed healthy operation, and is expected to achieve single-digit revenue and profit growth in 2024. Looking at Zhenjiang8 as the company's “ballast stone” product in 2025-2026, it may continue to enjoy the dividends of the downward trend in mainstream consumer prices. High-end products such as Jingtai and Collection are expected to gradually break out of pressure and accelerate growth year by year as the environment improves; Tianhao Chen is still in the market introduction stage, and it is expected to exceed the overall growth rate along with investment promotion and new market expansion. The company's EPS is expected to be 3.04/3.37 yuan in 2025/2026, corresponding to the current PE price being 15/13 times, covered for the first time, and given a “buy” rating.
Risk Alerts
1. The release of production capacity falls short of expectations, leading to a weakening of competitiveness;
2. Demand recovery fell short of expectations due to macroeconomic fluctuations;
3. Risk of intensification and deterioration of competition in the liquor market;
4. Risks that profit forecasting assumptions are not true or fall short of expectations, etc.
