The company's recent situation

We recently attended Changyu's shareholders' meeting and learned about the company's product focus strategy and its plan to focus on key cities and product marketing. Additionally, the company introduced a 2023 restricted stock incentive plan.

reviews

The company implements a mid-range and high-end focus strategy, optimizes product processes, and increases gross profit margin. The company pushes the product structure further towards the middle and high-end, especially the high-end, and focuses on core products that can bring greater sales volume and profit contribution. For mid-range and high-end products, process upgrades are carried out to give Chinese craftsmanship elements, form their own taste and characteristics, and tell Chinese stories well; for entry-level products, it is their mission to develop entry-level leaders, and set up innovative units with young people as a starting point to improve the process to cater to the tastes of young people from taste, packaging, and story. Improve gross profit margins by focusing on strategies to complete various product line structures and process upgrades.

Focus on key cities and core consumer groups, and focus on banquet scenario marketing. The company focused on different cities by product: Longyu mainly focused on 15 nurturing cities to achieve breakthrough growth; winery wine focused on several key cities in the eastern market; implemented strategic adjustments in the brandy category: Guangdong and Shandong were used as important primary markets, and manpower was drawn from the central and western regions, focusing on Jiangsu, Zhejiang and Fujian for market segmentation; while in the west, it mainly cultivates markets in the west. The company also continues to explore the banquet scene for Hebainer and mid-range brandy. Last year, Jiebaina completed 31,000 banquets nationwide, and this year's target is 60,000. The company uses segmented marketing to seek breakthroughs in the market.

The company introduced the 2023 Restricted Stock Incentive Plan. It is proposed to award 1% of the total share capital to the incentive target, at a grant price of 15.69 yuan per share. The target is revenue of no less than 43/47/51 billion yuan in 2023-2025, an increase of 9.8/9.6/8.1%, net profit of no less than 5.0/5.3/560 million yuan, an increase of 17.7/5.4/5.3%. The company assesses profits and variable costs for the production department (if order volume falls), assesses profits for the sales department, assesses profits before depreciation for the scenic area department, and rewards individuals who meet basic standards at a total reward level of 70%; we believe that the equity incentive plan can effectively boost momentum and help the company seek market breakthroughs in difficult times.

Profit forecasting and valuation

The company's strategy was adjusted and optimized, and prices for multiple products were raised, so we raised our 2023 net profit forecast by 2.4% to 500 million yuan; we expect the 2024 sales expenses ratio to rise slightly, so we lowered our forecast by 9.0% to 530 million yuan. The company's equity incentive plan is progressing steadily, so we maintain a target price of 27.6 yuan for A-shares, corresponding to 37.3/35.5x P/E in 2023/24. The current stock price corresponds to 2023/24 41/39x P/E, with 9% downside, maintaining a neutral rating; maintaining the target price of B shares at HK$13, corresponding to 14.9/13.8x P/E in 2023/24. The current stock price corresponds to 13.2/12.2xP/E in 2023/24, with 12.8% upward space to maintain the industry rating.

risks

Other types of wine are squeezing the wine market, market input and output are uncertain, the risk of fluctuations in raw material costs, etc.