Orient Securities released a research report stating that it maintained the “buy” rating of Zhenjiu Li Du (06979) and lowered revenue, raised gross profit margin, and raised expenses for 24-25 according to the 23-year results announcement. The forecast earnings per share for 2023-2025 are $0.69, 0.56 and 0.66 (the original forecast was $0.48, 0.61, 0.76), and the target price is HK$11.06. The company announced results. In 2023, it achieved revenue of 7.03 billion yuan (yoy +20.1%), achieving net profit of 2.33 billion yuan (yoy +126.0%); 23H2 achieved revenue of 3.51 billion yuan (yoy +25.6%), and realized net profit of 740 million yuan (yoy +46.9%).
The main views of Orient Securities are as follows:
Diversified products performed well, and the product structure improved rapidly.
By brand, Zhenjiu achieved revenue of 4.58 billion yuan (yoy +19.9%) in '23, of which sales volume and tonnage price were -1.8% and +22.0%, respectively, and the gross margin of Zhenjiu was +3.2pct year on year, mainly due to the rapid release of bottled wine in Zhen30 and the product structure; the revenue of the second-high-end Zhenjiu 15 increased dramatically, and the middle- and low-end Zhenjiu and Yingshanhong also showed relatively rapid growth. Li Du achieved revenue of 1.11 billion yuan (yoy +25.1%), and the volume and price rose sharply. The revenue of Li Du Sorghum increased dramatically in 1975; the revenue of Xiangjiao/Kaikou Xiao was +17.0%/+13.6%, respectively.
By grade, the revenue of high-end, sub-high-end, and mid-range alcohol was +33.2%/+15.3%/+16.3%, respectively, and the share of high-end wine revenue increased 2.7 pct year over year, respectively. By the end of '23, the number of dealers, experience stores, and retailers had increased by 127, 109, and 127 respectively over the end of 23H1. Rapid channel expansion contributed significantly to revenue growth. By the end of '23, the company's pre-sale customer payments were 1.85 billion yuan, a slight increase from year to month.
The gross margin of multiple brands increased significantly, boosting profit levels.
In '23, the company's gross margin was 58.0% (yoy+2.7pct). Among them, Zhenjiu/ Li Du/ Xiangjiao/ Kaikou had gross margins of +3.2pct/+3.5pct/-1.2pct/ +2.2pct, respectively. Zhenjiu/Li Du/Kai Kou Xiao all showed significant structural upgrades, driving up gross margin. The sales/management expense rates in '23 were 23.1%/6.8%, respectively, +0.2pct/+0.3pct year-on-year, respectively. Excluding listing related expenses, equity incentive fees, and changes in the fair value of financial instruments issued to an investor, the net return interest rate for 23 was 23.1% (yoy+2.7pct), further improving profitability.
With the support of customers from different industries, the growth momentum is good.
The company accelerates the expansion of customers from different industries, and is expected to increase prices and enhance brand power while expanding its circle. Under the low base of Zhen 30, it is expected to maintain high growth; the company continues to be deeply involved in the regional market. Currently, Zhen 15 has shown a strong sales trend in some key markets such as Guangdong, Henan, and Shandong. Against the backdrop that soy wine as a whole is still recovering, Zhenjiu performed well, rapidly increased its share, and showed a healthy development trend.
Risk warning: Economic recovery falls short of expectations, product sales fall short of expectations, and market competition heightens risks.