Event

The company released its annual report for 2016, with an operating income of 781.599 million yuan during the reporting period, an increase of 5.98% over the same period last year, and a net profit of 58.7899 million yuan, an increase of 40.62% over the same period last year, corresponding to a 16-year EPS of 0.33 yuan per share. The company intends to distribute a cash dividend of 0.90 yuan (including tax) to all shareholders for every 10 shares, with a total profit distribution of 18.018 million yuan.

The company also announced the first quarter of 2017 report, during the reporting period, operating income reached 214.7946 million yuan, an increase of 10.43% over the same period last year; net profit returned to the mother was 15.3559 million yuan, an increase of 36.93% over the same period last year, corresponding to EPS of 0.08 yuan per share.

Brief comment

Organic sales have greatly increased and achieved good performance.

In 2016, the company achieved operating income of 781.599 million yuan, an increase of 5.98% over the same period last year, and a net profit of 58.7899 million yuan, an increase of 40.62% over the same period last year. During the reporting period, revenue increased year-on-year and net profit increased significantly, the main influencing factors are reflected in the following aspects:

1. Organic wine sales of the company's main products increased by 51.11% to 8,533.73 kiloliters, with revenue of 407.8538 million yuan, a year-on-year increase of 45.98%, and revenue accounted for 52.18%, which was the main driving force of the company's performance growth. 2. During the reporting period, the company completed the IPO work and planned a non-public offering of shares, so the amount of bank loans decreased significantly. At the same time, affected by the reduction of the actual loan interest rate, the financial expenses decreased by 38.89%, or 18.3771 million yuan.

The company's product sales are mainly based on dealer agents, and the direct sales channels such as direct supply terminals, e-commerce and group buying are combined, in which the sales revenue of distributor channels is 728.1946 million yuan, an increase of 7.46% over the same period last year, accounting for 94.20%. The sales revenue of Shang Chao channel is 44.8504 million yuan, down 3.65% from the same period last year.

Benefit from the holiday influence, the first quarter performance continues to improve

In the first quarter of 2017, the company achieved operating income of 214.7946 million yuan, an increase of 10.43% over the same period last year; net profit reached 15.3559 million yuan, an increase of 36.93% over the same period last year. Revenue and net profit maintained steady growth in the first quarter, mainly due to the impact of festivals. The sales revenue of the company's low-end and high-end products increased by 5.86% and 125.80% respectively compared with the same period last year, promoting the growth of the company's performance.

In the first quarter, the company's overall gross profit margin was 55.14%, an increase of 2.95% over the same period last year; operating costs increased by 18.20% over the same period last year, and the sharp increase in operating costs was mainly due to the increase in the company's product sales, while the company's large base of low-end product sales revenue was the main driving force of the company's revenue growth, thus pulling down the company's overall gross profit margin.

Sales of products increased and gross profit margin decreased slightly

In 2016, the company's overall gross profit margin was 57.78 percent, down 0.18 percent from the previous year; operating costs were 329.9959 million yuan, an increase of 6.44 percent over the same period last year. The increase in operating costs was mainly due to a 71.77 percent increase in the company's organic wine production to 10357.04 kiloliters. In terms of products, the gross profit margin of organic wine reached 61.18%. Affected by the substantial increase in sales volume, the gross profit margin decreased by 1.66 percentage points compared with the previous year, and the gross profit contribution rate was 55.25%. The gross profit margin of dry wine, sweet wine and sparkling wine was 56.36%, 26.91% and 30.64% respectively, which was-1.23%, 1.03% and 1.13% respectively over the previous year, and the gross profit contribution rate was 42.61%. The gross profit margin of grape distilled wine, brandy and imported wine was 58.95%, 28.50% and 30.51% respectively, which decreased by 0.51%, 0.35% and 0.27% respectively over the previous year.

The sales expenses in 2016 were 221.7308 million yuan, an increase of 1.41 percent over the same period last year, accounting for 75.72 percent of the total expenses for the period, mainly due to the company's increase in local advertising expenses, advertising and publicity expenses increased by 76.40 percent over the same period last year; sales conference expenses increased, and office expenses increased by 86.53 percent over the same period last year. The administrative expenses were 42.2406 million yuan, an increase of 2.94% over the same period last year, mainly due to the increase in travel expenses for overseas visits and related expenses incurred in stock issuance, of which travel expenses increased by 64.07% over the same period last year. The financial cost was 28.8724 million yuan, down 38.89% from the same period last year, mainly due to the company's completion of the IPO work in 2016 and the planning of a non-public offering of shares, a reduction in the amount of bank loans and a reduction in the actual loan interest rate.

Mainly promote organic, speed up the layout of high-end products

At present, the company has formed a vertically integrated management pattern of "wine grape planting-wine production-packaging printing-logistics distribution-sales", and gradually deepens the whole industry chain model. On the basis of maintaining the steady growth of traditional wine production and sales, the company has made great efforts to develop a series of organic wine products. on the one hand, on the basis of the existing 20, 000 mu organic wine grape planting base, the company has raised funds through IPO to build a new 18000 mu planting base to ensure the supply of high quality organic grape raw materials. On the other hand, we firmly implement the "boss project" and the "dragon net project", cultivate the core consumer groups through the two major projects, expand the sales scale of organic wine, and increase the proportion of high-end wine in the company. Through the non-public offering of shares, the company has raised funds to invest in the construction of the "Australian 60, 000-ton high-quality grape wine processing project" to further expand the scale of the company's high-quality wine brewing. to meet the current needs of Chinese consumption upgrading and consumers' demand for high-quality wine.

Dealer shareholding, strengthen cooperation and consolidate channel advantages

The company's product sales mainly use dealer agents, on the one hand, sink the marketing channels of superior sales areas to the county, city and township level, closer to consumers, on the other hand, strive to develop new markets, focusing on tobacco hotels, group purchases and banquet channels. In 2016, the company introduced excellent dealers through non-public offerings, and dealers held shares, binding the long-term interests of both sides, and further consolidating the long-term stable cooperative relationship with dealers. In addition, the company plans to implement the "Thousand Merchants Wandian Project" in the next few years, combined with brand promotion and product promotion, to carry out various promotional activities to expand the company's product market share.

Profit forecast

Organic wine production and sales rose sharply in 2016, which boosted the company's revenue, significantly reduced financial expenses and led to a rapid increase in net profit. At present, the company's designed production capacity is 40,000 kiloliters, but in 2016, the actual production capacity is only 24553.06 kiloliters, the capacity utilization rate is 61.38 percent, and there is plenty of room for product output growth. In the future, as the company further improves its marketing channels and establishes a long-term and stable cooperative relationship with dealers, product sales are expected to be further improved to support the company's performance growth. We estimate that the EPS of the company from 2017 to 2019 is 0.40,0.54,0.69 yuan per share respectively.