Incident: According to the wine industry, on ****e Fenjiu Sales Company Dealer Conference with the theme of “Deeply Implementing the Fenjiu Revitalization Program and Comprehensively Promoting High-Quality Market Development” was held in Kunming, Yunnan. At the conference, Fenjiu announced that the billing price for the entire Laobaifen series was raised by 5 yuan/box; the Blue and White 20 has been fully upgraded to add a five-code system.
Lao Baifen plans to renew and raise prices in June to strengthen lumbar support. The company adheres to the strategy of “seizing blue and white, strengthening the waist, and stabilizing Bofen”, superimposes the growth trend of mass consumer goods, and positions the continuation of growth in mid-tier Panama and Laobaifen. As early as May 17, the 2023 Shareholders' Meeting mentioned that the company will set up a specialized steering group to increase the promotion of these two products in the second half of the year. In June, Laobaifen will launch new and upgraded products to boost the banquet market, which is expected to become the series with the highest growth rate in all categories of the company.
The market layout outside the province has increased, and the product structure within the province has been upgraded. In 2023, the province achieved revenue of 19.659 billion yuan (yoy +22.84%), gross margin of 74.42% (yoy+0.25pct), and the revenue share increased 0.52 pct to 61.57% year-on-year. By the end of 2023, the number of distributors outside the province was 3120, an increase of 251 over the end of 2022. Among them, the core market south of the Yangtze River increased by more than 30% year-on-year in 2023, and the nationalization process was further advanced. The 2023 shareholders' meeting proposed that Fenjiu will grow more outside the province in 2024. After two-way communication between the company and local dealers, the growth rate indicators have been determined, mainly based on local economic development, customer terminal cultivation, and category price ranges. The province mainly focuses on upgrading the product structure. Among them, low-end Bofen was upgraded to old Baifen; in the blue and white series, blue and white 20 was used as a starting point to strengthen product strength and cost performance, and the blue and white 30 broke through upward, focusing on the revival version to achieve value re-creation, and further promote the upgrading of banquets and commercial consumption.
Blue and White 20 has been fully upgraded, and expenses are accurately distributed. The upgraded blue and white 20 was shown at this dealer conference. The bottle cap design uses indigo blending techniques to show a natural transition from blue and white porcelain. A five-code integrated system has been fully added to further strengthen the control of channels and price systems. An RFID chip is embedded inside the bottle cap, and the NFC reading function is supported. With the full implementation of the 5-code in 1 product, the Fen Rewards model will have more traction, the profit sharing model will be transformed at an accelerated pace, and the cost will be distributed accurately.
Investment suggestion: As a leader in scented liquor, the company actively implements the Fenjiu Revitalization Program through “breakthrough” actions such as cultural revitalization, fragrance leadership, state-owned enterprise reform pilot, and digital intelligence transformation. Currently, the market structure of “a red sun, five stars, and a fragrant world” is gradually being formed. On the one hand, the company uses Qinghua 20 as the benchmark for Fenjiu development to raise the grade and scale of Qinghua Fenjiu products and promote a major breakthrough in the market share of the full range of Qinghua Fenjiu products. On the other hand, the company uses Bofen as the development benchmark to expand the fragrance consumer base and drive the all-round development of waist products such as Laobaifen. The company is expected to achieve revenue of 388.38/465.76/552.4 billion yuan in 2024-2026, up 22%/20%/19% year on year; realized net profit of 131.24/160.28/19.469 billion yuan, up 26%/22%/21% year on year respectively; and corresponding PE valuations are 23/19/15X, respectively, maintaining an “increase” rating.
Risk warning: the impact of macroeconomic fluctuations, consumption recovery falls short of expectations, industry competition intensifies, blue and white 20 growth falls short of expectations