Value comes first, and it is imperative for Wuliangye to raise prices. Since 1218 in 2023, a series of price correction combinations such as volume reduction, price increase, product control, and channel arrangement have gradually become clear: 1) the 2024 dealer contract plan volume will be reduced by 20% from 2023; 2) Starting February 5, 2024, the factory price of Pu 5 will increase by 50 yuan, from 969 yuan to 1,019 yuan; 3) after the 2024 Spring Festival, the company suspended shipments, mainly digesting channel inventory; 4) mobilizing dealers to rectify low prices in the market. Under this set of price increases, market supply has shrunk markedly, channel inventory is controlled at a relatively low level, and dealers are generally confident, forming strong support for the price. In terms of comprehensive delivery costs, there may still be upward momentum in the short term. In the medium to long term, it is expected that the volume-price relationship will be straightened out and gradually overcome the volume-price game dilemma.
Marketing changes have entered the deep-water zone, laying the foundation for price control. In history, Wuliangye achieved initial rapid growth by continuously conquering land with large commercial systems, but at the same time, it also left behind many shortcomings such as weak channel control, separation of production and marketing, and brand dilution. After 2017, a second venture was launched, and drastic reforms were carried out in the marketing system. The marketing system was improved through a series of measures such as organizational flattening, channel flattening, terminal system construction, and marketing digitalization, laying the foundation for the company to enter a steady stage of high-quality growth. Judging from the history of price increases, it is normal for Pu Wu to raise prices in an environment where prices are inverted, and trading methods are also becoming more accurate and steady. On the basis of continuing deepening marketing reforms, the price market has maintained an upward trend, and it is expected that the future will continue to witness Wuliangye enter a smoother positive cycle of volume and price.
The product system is constantly being optimized, and there is still potential outside of P5. Wuliangye has now formed a product matrix for the main brand “1+3” and the “4+4" wine series. We believe that Wuliangye's side product strategy is becoming more clear, and with related marketing initiatives, it is expected to make up for growth: 1) 1618 will focus on building the number one brand with a banquet price of 1,000 yuan, and the two will increase investment and code scanning rewards to enhance channel momentum; 2) Classic Wuliangye enhances brand promotion and consumer cultivation to help increase the value of the Wuliangye brand; 3) Improve the product matrix and launch 45 and 68 degree products to supplement differentiated demand; 4) The product system of non-standard and creative wines is further enriching the aging market Cultivate and build; 5) The series of wines continues Focus on the big single product strategy, increase brand promotion and cultural marketing, and further advance the construction of a classified and hierarchical market.
Investment advice: The company maintains a double-digit revenue growth target in 2024 to inject strength into the market in an environment of reduced volume control and divergent short-term performance expectations. We believe that in addition to P5's “price-first”, volume increases can still be achieved through diversified efforts in products and channels. With the deepening of marketing reforms, medium- to long-term strong energy is expected to gradually form. I am optimistic about the steady performance of the company in the short term and the certainty of growth under the optimization of medium- to long-term volume-price relationships.
Currently, the company's valuation is at a historically low level. Combined with the characteristics of high dividends and high dividend rates, the allocation value is prominent. The company is expected to achieve net profit of 337.2/377.9/42.13 billion yuan in 2024-2026, an increase of 11.6%/12.1%/11.5% year-on-year; the corresponding PE is 17.3/15.4/13.8 times. Maintain an “Overweight” rating.
Risk warning: consumer scenario repair falls short of expectations; food safety risks; price boost falls short of expectations