The valuation was discounted due to the impact of multiple restrictions. Since the second half of 2021, the company's stock price has outperformed Shanghai and Shenzhen 300 and the Liquor Index by 18% and 21%, respectively, and PE is clearly discounted compared to Kweichow Moutai. We believe that due to macroeconomics, the capital market is biased based on short-term growth. At the management level, taking into account the quality of long-term development and an appropriate decline in revenue, the Eighth Generation Wuliangye stabilizes the basic market, which is an optimal solution based on the stock environment — preserving strength and aiming for development.
The Wuliangye brand has a rich heritage, and its development potential is being activated. In the long run, the liquor industry has entered a stage of comprehensive factor competition, and the era of wine companies relying on a single advantage to gain share is over; Wuliangye's brand advantage is outstanding, production capacity for high-quality wine is abundant, the product structure is continuously optimized, and the nationwide channel system is improved, and multi-dimensional competitive advantages support the company's further increase in market share. The company positioned 2024 as the “marketing execution year” and carried out a series of reforms, and the company's development potential is being activated.
A leader in the price of 1,000 yuan, the tools for growth are becoming more and more abundant, and maintaining the basic market. Wuliangye products accounted for 82.2% of the company's total revenue in 2023, which is where the company's basic market is located. We estimate that the price of 1,000 yuan will continue to expand at a compound growth rate of 10-15% over the next 5 years. The basic market of Eighth Generation Wuliangye is stable and will continue to dominate for a long time. The flanking products Wuliangye 1618 and 39 degrees Wuliangye guard the Eighth Generation Wuliangye seize more market share. The banquet market is already beginning to have growth potential, helping to further optimize the volume and price of Eighth Generation Wuliangye. Recently, the company launched 45 and 68 degrees Wuliangye, and the competitive strategy is more clear; the wine series (especially Wuliangchun) has also entered a growth channel after full adjustment.
Ultra-high-end products are being cultivated steadily, and the classic Wuliangye strategy is strong enough to actively create a new growth pole. As the era of large-scale fixed asset investment recedes, the logic of the rapid rise in volume and price of large single products in the liquor industry is also weakening; seeking an upward breakthrough in tonnage prices and building a new growth pole has become a new issue for the industry. The Wuliangye brand has obvious advantages, and there is enough strength to make classic Wuliangye the company's second growth curve. We believe that Classic Wuliangye has a high probability of success: 1) Under Maotai's leadership, the ultra-high-end market is still in the blue ocean layout stage; 2) After several years of market-based competition and the reduction and price increase strategy of the 8th generation of Wuliangye in 2024, the current wholesale price of 1,000 yuan is higher than 900 yuan. Only the 8th generation Wuliangye brand strength is strong; 3) In 2021-2023, the company decelerated growth quality and successfully raised the price of the Eighth Generation. Further improve vendor relationships, company The reform ushered in a window; 4) Drawing on the operating experience of the past few years, the classic Wuliangye adopted a platform-based and annual operation model.
Profit forecast and valuation: Considering the gradual contribution of long-term ultra-high-end products to tonnage prices, the 2026 profit forecast was slightly raised. The company's net profit for 2024-2026 is expected to be 338/376/42.2 billion yuan (previous value was 338/376/41.5 billion), +12.0% /11.2/ 12.1% year-on-year. The dividend rate in 2023 is 60%, and there are long-term expectations for a steady increase. The current market capitalization corresponds to a dividend rate of 3.1%, giving the company 20-24 times PE in 2024, corresponding to the target price of 174.39-209.27 yuan and 25.8% upward stock price room, maintaining a “buy” rating.
Risk warning: Economic recovery falls short of expectations, leading to a decline in industry demand; increased competition for the price of 1,000 yuan, etc.