The company adheres to the brew+ready-to-drink two-wheel drive strategy. The 2023 performance was restored as scheduled, and the outlook for the future remains positive. The basic market of the company's brewing business is steady, with revenue growth of 9.37% after the recovery of the consumption scenario in 2023; the ready-to-drink business experienced a three-year decline, with revenue growth of 41.16% in 2023. The company has also adjusted its ready-to-drink operation ideas and has set up an independent sales team to actively seek out full-time distributors and focus on building a model market. 2023H2 has implemented equity incentives, the 2023 assessment target has been completed, and the 2024/2025 revenue target is 4.223/4.692 billion. At the end of 2023, a new CEO took office. As the company's first professional manager, he has extensive experience in FMCG operations and has already transferred 5% of the company's shares, demonstrating confidence in the company's long-term development.
The brewing business is a repair logic in the short term, and it is necessary to find its own second growth curve in the long term. The growth of the brewed milk tea industry has come to an end, and the company's market share is already relatively high. In the future, channels can sink, build high-potential stores, and gradually upgrade the product structure to achieve steady restorative growth of about 10%. The impact of ready-made tea on the company's brewed products is limited, and medium- to long-term companies need to expand products such as coffee and pan-brewed products to open up room for growth. The gross margin of the brewing business has now increased dramatically due to a drop in raw material prices after price increases.
The ready-to-drink business will bring three levels of impact to the company: opening up room for overall revenue growth, calming seasonal fluctuations in revenue to improve operating efficiency, and expanding into weak markets such as South China and Northeast China. By analyzing the cost of Lan Fangyuan milk tea and Meco juice tea, the high cost of the company's cup products made the price have no advantage over competitive products, while Meco chose to reduce the gross margin to ensure the right price and thus achieve volume. Currently, the gross margin of the ready-to-drink business is less than 20%. On the one hand, the unit manufacturing cost is high because the utilization rate of 491,900 tons of ready-to-drink production capacity is less than 30%. On the other hand, according to estimates, the gross margin of cup products will also be less than 35% when production is full. The current sales feedback for the new frozen lemon tea is positive, and it is expected to achieve rapid growth as terminal coverage increases. As the first bottled product that is expected to be released, in addition to increasing the company's revenue and capacity utilization, the increase in revenue share will also bring structural improvements to the long-term gross margin of ready-to-drink tea. Furthermore, we calculated the break-even point of the company's ready-to-drink business of about $1.8-20 billion.
Investment advice: The company's brewing business is recovering steadily, and the high growth potential of the ready-to-drink business is expected to continue. It is estimated that in 2024-2026, the company's EPS will be 0.86/1.10/1.31 yuan, and the corresponding PE will be 20X/16X/13X, maintaining a “buy” rating.
Risk warning: ready-to-drink expansion falls short of expectations, raw material prices fluctuate, and industry competition intensifies