Under the 2020 epidemic, the company's reform execution did not decrease but increased, achieving obvious breakthroughs in various aspects such as brands, products, and channels. Looking short, peak season growth is optimistic, year roundWuliangyeAchieving double-digit growth is highly deterministic. Looking ahead, the “13th Five-Year Plan” has been very effective. The “14th Five-Year Plan” is expected to continue to gain strength. In the future, the company will continue to benefit from reform dividends, unleash strong brand potential, and achieve healthy growth with high certainty. The target price was raised to 260 yuan to maintain the “buy” rating.
The 2019 reforms were effective at the beginning, and the 2020 epidemic bucked the trend and broke through. In 2017, the management, with Chairman Li Shuguang at the core, took office and promoted comprehensive reforms. After several years of continuous accumulation, it accumulated and underdeveloped in 2019, achieving phased results. Under the 2020 epidemic, the execution of Wuliangye's reforms did not decrease but increased. Under the strategic idea of “putting price first, firm reform”, marketing continued to lead, and prices rose steadily, and achieved obvious breakthroughs in channel construction and management, brand building, and product development. We believe that under the trend of improving channel profits, dealer confidence is recovering, and channels are gradually entering a positive cycle of volume and price. The reform is gradually penetrating into various aspects such as products and brands, and gradually evolving into a systematic project. The reform will continue to be deepened. Judging that 2020 is only the starting point for Wuliangye's comprehensive reform, it will continue to benefit from reform dividends in the future and achieve long-term steady growth with high certainty.
Traditional channels accurately distribute & drive high-quality growth; strategically develop group buying channels; make important additions to new retail channels.
The company's channel management capabilities have been upgraded: on the one hand, it continues to deepen traditional channel reforms and rationally allocate dealer plans based on the digital system; on the other hand, strategic incremental group purchases and the development of new retail channels. The multi-channel structure enhances the company's ability to regulate quotas, and group buying & new retail also has a strong driving effect on the Wuliangye brand.
① Traditional channels: Through digital transformation, the company has more three-dimensional screening of dealer channel inventory, terminal resources, service capabilities, etc., and based on this, supply-side operations have been strengthened, and accurate channel inventory allocation plans have been distributed. During the pandemic, “increased quotas for dealers with good sales and strong capital, and reduced quotas for dealers with pressure on marketing/inventory”, prices continued to rise against the trend to achieve high-quality growth.
② Group buying channels: In 2020, the company plans to strategically develop group buying channels, mainly through direct company docking and cooperative dealer docking with war zones. According to recent tracking, Wuliangye's group purchases are progressing smoothly, and feedback from dealers & customers is positive. It is expected to achieve 15% to 20% of sales throughout the year. We believe that the group purchase has achieved direct contact between Wuliangye and opinion leaders, and the company has further grasped the channel volume and price game initiative, guided dealers to standardize operations, actively serve, and stimulate channel vitality.
③ New retail channels: Implementing the idea of “online compensation for offline losses” and adapting to changes in residents' consumption habits after the epidemic, the company established a new retail company in May to expand new direct sales channels. In the future, the new retail channel will serve as a price anchor for the company's products and an important platform for brand promotion, and an important complement to the Wuliangye channel system.
Upgrade the main brand's “1+3” strategy. Based on Pu 5, 501 and Classic Wuliangye will boost the price range and brand power.
Product focus is an important focus of Wuliangye's reform. Product focus will continue to be strengthened in 2020, including upgrading the main brand's “1+3” strategy, and the wine series will further focus on 4 national strategic brands. For details, see:
① Main brand: upgrade the main brand's “1+3” strategy, “1” -- continue to consolidate the core single product 8th generation Wuliangye, “3”
——Maintain a low level, and adjust tactical products such as Jiaopi and 1618 to 501 Wuliangye and classic Wuliangye. After several years of reform and accumulation, the company's strategic thinking on brand & product strategy is more mature. The main brand's product matrix is the carrier of the Wuliangye brand, representing the brand tone. The upgraded “1+3” also represents the height and future direction of the Wuliangye brand, hoping to drive the company's brand forward. Classic Wuliangye launched a new product on September 23, retaining the company's most glorious bottle shape and flavor, and focusing on high-end business opinion leaders. We think inMaotaiWith the retail price reaching 3,000 yuan, there is a large gap in the 2,000 yuan+ price band. As the king of strong fragrance, the company is fully capable of taking its place in this price band. It is expected that the new products will effectively meet the needs of high-end strong fragrance consumers. Looking forward to the future, after 2000+ yuan, the company plans to promote higher-priced products and continuously enhance the product system above five, cooperate with the promotion of the company's group purchases and the implementation of digital wine certification projects, explore Wuliangye's collection and investment value, and help Wuliangye break through to more high-end brands.
② Wine series: In 2019, the company focused on the “4+4" strategy and cleared about 130 brands and more than 1,600 SKUs. In 2020, further focus was placed on the four major national strategic brands, Jianzhuang, Wuliangchun, Wuliangol, and Wuliangqu, concentrating resources to expand and strengthen the wine series. Among them, Jianzhuang was only affected by the epidemic as a bottle of wine. In 2020H1, the revenue of Jianzhuang also increased by 156%. The focus strategy was initially effective, and the next 3-5 years, Jianzhuang's revenue was over 10 billion dollars. We believe that through continuous reform, the wine series will transform from a shortcoming that originally dragged down the company's development into an important part of the revival of Wuliangye's strong fragrance. The company's wine series is expected to impact the sales scale of 20 billion yuan through about 5 years of hard work.
The results for the third quarter of 2020 and the full year are highly certain, and the “14th Five-Year Plan” is expected to achieve high-quality growth. Looking ahead to the peak season, judging that the industry is neutral and demand for high-end wine is the most certain. Tracking shows that Wuliangye's performance is steady and the trend is improving: ① Inventory is at a low level: the national inventory is only 8%, less than 1 month. This week's peak season is gradually being shipped in line with market demand, and inventory has increased; ② Good terminal sales: recent peak season consumption has started, and Wuliangye has accelerated sales and positive feedback. Overall, Wuliangye is expected to grow optimistically in Q3, achieving steady volume based on stable prices. There will also be steady growth with high certainty in 2020. Looking ahead to the “14th Five-Year Plan”, the company hopes to achieve high-quality growth with a sharp rise in volume and price, and the revenue scale is expected to reach 100 billion: ① In terms of sales, high-end expansion driven by consumption upgrades, which is a prerequisite for the company's volume; as Wuliangye's internal reform dividends continue to be released, the company's comprehensive brand+channel advantages continue to expand, and the main brand & wine series share leading dividends, and sales continue to increase. ② In terms of price, the brand's continuous breakthroughs have brought the company the possibility of increasing the factory price; at the same time, changes in channel structure and product structure have also brought about an increase in tonnage prices.
Risk factors: The development of the epidemic has exceeded expectations, the liquor industry has fallen short of expectations, reforms have fallen short of expectations, food safety risks.
Investment advice: Maintain the company's 2020-2022 EPS forecast at 5.15 yuan/6.35 yuan/7.52 yuan. The company's reforms continue to be deepened, channel control is improved, and brand potential is unleashed to drive the company's long-term high and high-quality growth, and there is still room for upward valuation.
As a result, the company's target was raised to 260 yuan, corresponding 41 times PE in 2021, maintaining the “buy” rating.