Matters:
Luzhou Laojiao released its 2023 annual report and 2024 quarterly report. Revenue for 2023 was 30.2 billion yuan, up 20% year on year, net profit to mother was 13.2 billion yuan, up 28% year on year; 1Q24 revenue was 9.2 billion yuan, up 21% year on year, and net profit from mother was 4.6 billion yuan, up 23% year on year. In 2023, the company plans to pay cash dividends of 54 yuan for every 10 shares, for a total cash dividend of 7.95 billion yuan.
Ping An's point of view:
Volume and price have risen sharply in '23, and the target is a 15% increase in '24. In 2023, the company's alcohol revenue was 30.1 billion yuan, up 21% year on year, with volume/price contributions of +12%/+9%, respectively. By product, revenue from high-end wine in 2023 was 26.8 billion yuan, with a year-on-year increase of 21%, of which volume/price ratio was +1%/+20%. Under macroeconomic pressure, Guojiao brands maintained growth resilience, and time-honored specialty and cellar age remained relatively stable; revenue from other wines was 3.2 billion yuan, up 23% year on year, of which volume/price ratio was +20%/+3%. By channel, in 2023, the company's traditional channel operating revenue was 28.7 billion yuan, up 23% year on year, and revenue from emerging channels was 1.4 billion yuan, down 3% year on year. The company has set a revenue growth target of 15% in 2024, laying the foundation for the implementation of the 14th Five-Year Plan.
Optimization of cost investment and improvement of profitability. In 2023, the company's gross profit margin was 88.3%, +1.7 pct year on year, and +1.2/+3.3 pct year-on-year margin, respectively. We think it was mainly due to product structure upgrades; 1Q24 gross profit margin was 88.4 percent, +0.3 pct year over year. In 2023, the company's sales/management/ R&D/ finance rates were 13.1%/3.8%/0.7%/-1.2%, respectively, -0.6/-0.9/-0.1/-0.1pct; 1Q24's sales/management/R&D/finance expenses rates were 7.8%/2.5%/0.3%/-0.7%, respectively, -1.2/-0.8/-0.0/-0.2pct, respectively. Thanks to the increase in gross margin and cost ratio optimization, the company's net interest rate to mother was 43.8% in 2023, +2.6 pct year on year; 1Q24 company's net profit margin was 49.8%, +1.0 pct year on year. As of 1Q24, the company's contract debt was 2.53 billion yuan, +81 billion yuan over the same period last year, and dealers were more willing to pay.
The granary market is stable, and nationalization continues to be promoted, and the “recommended” rating is maintained. The company has a deep brand base, and the sales momentum of Guojiao products is good. Waist products have accumulated momentum after adjustment, high-line light bottle products continue to be cultivated, and the full price range is sufficient. Furthermore, the company's granaries in Sichuan and North China have a solid base, and East China is developing rapidly, continuing to advance the “rise in the map from east to south” strategy and deepening the national layout. Considering the company's cost investment optimization, we slightly raised our 2024-25 net profit forecast to RMB 163/19.6 billion (original value: RMB 161/19.5 billion), and we expect net profit to be RMB 23.2 billion in 2026. Maintain a “Recommended” rating.
Risk warning: 1) Impact of macroeconomic fluctuations: Liquor is greatly affected by macroeconomic fluctuations. If the macroeconomic downturn has a big impact on industry demand; 2) Consumption recovery falls short of expectations: under the slowdown in macroeconomic growth, national income and employment are affected to a certain extent, and the recovery in consumer spending capacity and desire in the short term may fall short of expectations, thus affecting the recovery of the liquor sector. 3) Increased risk of industry competition: Deterioration in the competitive landscape will disrupt and affect pricing in the liquor industry to a certain extent, causing adverse effects on the industry.