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会员
机构：兴业证券
研究员：SU Cheng
Shanxi Xinghuacun Fen Wine Factory Co., Ltd. (“the company”) was established in December, 1993 and listed on the Shanghai Stock Exchange in January, 1994. The company mainly produces the famous Chinese Fen Wine. It is a production base for high-quality liquor in the country. In recent years, the company has been focusing on the building of quality and culture as it continuously strengthens its branding. The company also innovates and improves internal management while giving priority to excellence and quality.
(Source: https://www.fenjiu.com.cn/docc/listed/listed.asp)
Comments
The company is one of the most successful targets that is stimulated via SOE (state-owned enterprise) reforms in this round of liquor boom. Its 2017-2021 CAGR (compound annual growth rate) is estimated at 37% (assuming CNY 21.3 billion for 2021), way ahead of the industry. The number of regions with a revenue of over CNY 100 million has increased from 8 in 2017 to 28 in 2021. The number of distributors has also increased from less than 1,000 in 2017 to more than 2,940 at present. And the number of controlled terminals has risen from less than 10,000 in 2017 to 1 million till now. The Fen wine market grows much more rapidly outside Shanxi Province than inside. The average growth rate of the market south of the Yangtze River exceeds 60%. The five-year cumulative growth of Qinghua Fen wine is more than quadrupled. The major products are further concentrated, as the sales proportion of the top ten proprietary products sold outside Shanxi province rises to 86.61%. The overall brand impact of the company has also been elevated significantly. With the historical origin for fine wine and four major strengths, the company has built up strong momentum for revival after continuous growth in the last five years.
Successful change of leadership ensures another peak for the company. At the latest Global Fen Wine Distributors Conference 2021, the proposed Chairman Yuan Qingmao delivered a speech, presenting his insight that the next three years will be a major strategic period for the company. In 2022, the company “aspires to ride the momentum and move toward a better structure, better efficiency, and higher quality”. The company will also aim to optimize both its market structure and product structure in its marketing.
The marketing work report highlights that the company will focus on three major markets and the Qinghua wine products. The three major markets are the large base market, the Eastern China market, and the Southern China market. The company will prioritize the three major markets, increase resource input, deepen the channel layout, and innovate the management model, in a bid to advance the national market layout of 1357+10, optimize and adjust the market structure, and speed up expansion across the country. The company attempts to make the three markets the pioneer and guarantee of its expansion. The three indicators in the company’s “133238” marketing reform policy all revolve around Qinghua wine, namely the sales of Qinghua wine, the terminal indicator of Qinghua 20, and the opinion leaders for Qinghua Fen wine. In 2022, the company will focus its marketing more firmly on Qinghua wine and strictly control and reduce the production of Bofen wine. Correspondingly, the elasticity of the net profit margin is expected to be significant.
Earnings forecast and investment recommendation
We raise our profit forecast for the company for 2022-2023. We estimate the company’s revenue at CNY 21.326 billion, CNY 27.455 billion and CNY 35.015 billion for 2021, 2022 and 2023, respectively, and its net profit attributable to shareholders at CNY 5.629, CNY8.489 billon and CNY11.717 billion, respectively. Considering that the company will continue to lead the market with an expected growth of over CNY 10 billion, it is expected to benefit from valuation premium moving forward. Based on the closing price on December 24, 2021, its PE ratio will be 32x for 2023, which is significantly lower than the normal valuation. We maintain the rating of “outperform”.
Potential risks
Less-than-expected consumption performance due to more-than-expected macroeconomic pressure; the failure of normal consumption recovery due to recurring epidemic outbreaks.
This English translation of the original Chinese version <山西汾酒点评报告：乘势而 上，更优更好更高> issued by Industrial Securities on Dec. 27, 2021 is for information purpose only. In case of a discrepancy, the Chinese original will prevail.