Horizontal comparison: Reform is the key for the company to break through development bottlenecks, and Fenjiu, Shanxi has plenty of potential for development. Using history as a guide, we have reinstated companies such as Kweichow Moutai, Wuliangye, and Yanghe Co., Ltd. When the revenue of wine companies exceeds 30 billion dollars, they usually enter a low-growth business cycle stage, or face tests such as production capacity, channels, organization, and brand, such as Maotai in 2014 and Yanghe in 2023. Fenjiu's transition from 10 billion to 30 billion dollars is faster than other liquor companies. We believe Fenjiu will not experience a significant deceleration in the next two years: 1) Fenjiu's full price layout, product structure adjustment speed is fast, and Qinghua 20 and Bofen are still in a high potential stage; 2) basic market markets such as Shanxi and Huanshan are stable, providing a foundation for price upgrades, and providing talent and channel models for nationwide expansion; 3) Active reforms make up for channel shortcomings. Fenjiu uses “Fenjiu's benefits” as a starting point to strengthen its ability to control profits and fine operations, optimizing the dealer team; 4) Blue and White 30 · Revival edition leadership , the price upgrade idea is clear.
Stay safe and think at risk: Organize first, carry out channel reforms, and empower product upgrades. Looking at historical review, every round of state-owned enterprise reform can systematically sort out internal mechanisms, organizations, etc. In 2023, Fenjiu carried out comprehensive reforms, deeply empowered management, and further adapted to the new stage of development. 1) Organizational name: The company has successively set up a blue and white division and a data management department to enable high-end wine cultivation and channel reform, and enter the organization-driven stage.
2) Talent echelon. The company began to increase external personnel and build an internal systematic training system. 3) Channel reform. Beginning in 2023, the company will use “Fen Enjoy Rewards” as a tool to make up for channel shortcomings, manage dealer hierarchical and channel hierarchical management, thereby identifying effective terminals and improving cost investment efficiency.
Growth logic: Build a basic market around the Shanxi region, multi-price belt layout, and steady and far-reaching development. Fenjiu has a multi-price range layout. In 2024, the focus of growth is more on the Blue and White 20+ Lao Baifen, “surrounding the Shanxi market” or gradually moving towards the “Shanxi like market”. The product structure and consumption habits are benchmarked within Shanxi Province, which confirms that the market outside of the province has entered the 3.0 stage. Second, we believe that Blue and White 20 is in the high potential growth range. From single business scenario growth to multi-scenario growth, horizontal comparison shows that Blue and White 20 is in the middle of national expansion. The development stage is between Crystal Sword and the 60 edition of the special song, and will not enter into a volume-price game in the short term. Therefore, the future nationwide expansion of Blue and White 20 can support Fenjiu's revenue to enter the 50 billion dollar camp.
Investment advice: Fenjiu may enter a period of historical opportunity for development and maintain a “superior to the market” rating. According to the previous profit forecast, the company is expected to achieve total revenue of 384.7/454.1/52.25 billion yuan in 2024-2026 (previous value was 384.7/451.7/51.93 billion yuan, up 0%/0.5%/0.6%), and realized net profit of 131.8/161.7/18.96 billion yuan (previous value was 131.2/160.6/18.96 billion yuan, increase 0.4%/0.7%/0%), corresponding to PE 21.5/17.5/14.9X. Considering the continued growth potential and the steady progress of channel reforms, the 2024 valuation level was given, corresponding to a target price of 248.40-291.60 yuan (median value of about 270.00 yuan), maintaining the “superior to the market” rating.
Risk warning: competition intensified; promotion of the Blue and White 30 revival edition fell short of expectations; demand recovery fell short of expectations, etc.