The Zhitong Finance App learned that Bank of China Securities released a research report saying that recently, the Liquor Industry Association published industry data. Compared with major types of alcohol, liquor revenue and average price growth rate were the fastest, and beer profit margins increased significantly. The pre-tax profit margin on liquor declined slightly, and the market share of dominant companies is expected to increase at an accelerated pace. The difference in revenue growth between liquor, wine, and rice wine has narrowed. The product structure upgrade has promoted a rapid increase in beer profit margins. Look out for opportunities to upgrade popular alcohol prices.

Related targets:

Liquor companies that focus on strong products with a price of 100-500 yuan and also have the potential to expand the nationalization or Huandai base market are optimistic about Shanxi Fenjiu (600809.SH) and Jinshiyuan (603369.SH). The trend of beer structural upgrading has been determined. The decline in raw material costs has brought high elasticity. The performance in the next two years is worth looking forward to. I am relatively optimistic about Tsingtao Brewery (600600.SH). Pay attention to opportunities in the rice wine industry. Leading companies are proactive, have more pragmatic product strategies, and focus on Guyue Longshan (600059.SH).

BOC Securities's main views are as follows:

Recently, the Liquor Industry Association released industry data. Data show that in 2023, the country's liquor production fell 5.1% year on year, revenue was 756.3 billion yuan, up 9.7% year on year, and total profit was 232.8 billion yuan, up 7.5% year on year. Beer production was 37.89 million kl, up 0.8% year on year, revenue was 186.3 billion yuan, up 8.6% year on year, and achieved total profit of 26 billion yuan, up 15.1% year on year. Wine production was 300,000 kl, up 3.4% year on year, revenue was 9.09 billion yuan, up 4.8% year on year, total profit was 220 million yuan, up 2.8% year on year. Rice wine production increased 3.2% year on year, revenue increased 2.1% year on year, and total profit increased 8.5% year on year.

Compared to major types of alcohol, the revenue and average price of liquor grew the fastest, and the profit margin of beer increased significantly

Since there may be differences in statistical caliber between absolute values and historical data, BOC Securities focused on year-on-year changes. Liquor production fell 5.1% in 2023, the only decline among all types of wine. The judgment was mainly affected by changes in demand preferences and declining consumption scenarios. Beer production increased slightly, and wine and rice wine bottomed out and rebounded.

On the revenue side, liquor is growing the fastest. The growth rate of liquor and beer is in the 5-10% range, while wine and rice wine are in the 0-5% range. According to estimates of revenue and production data, the sharp increase in the average price of liquor and beer may be due to an upgrade in the mass consumer price band, which reduced the share of sales of low-end liquor and low-end beer. Pre-tax profit margins in the liquor and wine industries have declined slightly, while pre-tax profit margins for beer and rice wine have all risen.

Liquor's pre-tax profit margin has declined slightly, and the market share of dominant companies is expected to increase at an accelerated pace

Bank of China Securities said that pre-tax profit margins for liquor declined in 2023. This is also the first time since 2017. Judging that on the one hand, consumers value cost performance more, and on the other hand, small and medium-sized enterprises are a big drag on the industry's profit margins.

(1) As consumers place more importance on cost performance, various wine companies have increased their sales or promotion efforts, and demand for cost-effective varieties in the core product system is better. However, according to BOC Securities's observations and the average price performance of the industry, the overall product structure of liquor still shows an upgrading trend. In particular, products priced at 100-500 yuan performed well.

(2) The total revenue and profit of listed companies for the 1st and 3rd quarter of '23 increased by 16.3% and 18.9%, respectively. The growth rate was higher than that of the liquor industry. Listed companies' share of revenue and profit continued to rise, but the share of profit increased faster. BOC Securities judged that superior wine squeezed other liquors. Small and medium-sized enterprises faced greater operating pressure, and the industry was clearing up at an accelerated pace.

The difference in revenue growth between liquor, wine, and rice wine has narrowed

There is some overlap in consumption scenarios between liquor, wine, and rice wine. Judging from the difference in growth rate, the squeeze on liquor has weakened. BOC Securities believes that in 2023, the wine and rice wine industry actively changed and sought breakthroughs, which had a positive effect. In 2023, Changyu introduced restricted equity incentives, and Guyue Longshan's directors and supervisors increased their holdings of the company's shares, making breakthroughs in institutional reform. Furthermore, as the drivers of economic growth change, consumer preferences for alcohol varieties are expected to diversify.

Product structure upgrades drive beer profit margins to increase rapidly

Beer production increased slightly by 0.8% year on year in 2023. As the share of young consumers aged 20-40 will continue to decline, BOC Securities anticipates that industry sales will remain stable or decline slightly in the future. The beer industry's revenue increased 8.6% year on year, higher than the revenue growth rate of Tsingtao Brewery, Budweiser Asia Pacific, and Chongqing Brewery, as well as the beer business growth rate of China Resources Brewery. The judgment may be due to industry statistics. Total profit increased 15.1% year-on-year, and the product structure upgrade led to a relatively rapid increase in profit margins. It is expected that in 2024, the structural upgrade will resonate with the decline in raw material prices, and profit margins will continue to rise rapidly.

risks

Effects of macroeconomic fluctuations. Prices for high-end liquor have been adjusted. Channel inventory exceeded expectations.