Anhui Kouzi Distillery Co.Ltd(603589) (603589)
Anhui Kouzi Distillery Co.Ltd(603589) is one of the leading liquor enterprises in the sub high-end region that we have been very optimistic about. The company has solid fundamentals. In recent years, significant changes have taken place in the business level, breakthrough in production capacity bottlenecks, continuous improvement of product quality, steady progress in marketing reform, and 2021q3 ushered in an upward turning point. At present, the market expectation is quite poor. We are firmly optimistic about the long-term growth of the company under brand concentration and price upgrading. In this report, we will focus on three issues: 1) whether the company's marketing reform in recent years has produced core changes; 2) The reasons for the low valuation of the company in the early stage and how to treat the competition pattern in Anhui market; 3) Whether 2021q3 is a quarterly rebound or a trend reversal, and what is the long-term trend of the company.
1. The core problem of production capacity has been solved. The strategic large single product "Jianxiang 518" has performed strongly, and the channels have been basically adjusted. The company has made great efforts in the group purchase channel of high-end wine, and the product structure has been significantly improved: Dongshan plant has been put into operation, and it is expected to form a production capacity of more than 65000 tons in the future. After the foundation of production capacity and quality has been laid, the company began to shift its business focus to marketing from Q4 in 2019q: 1) launched "Jianxiang 518" of more than 500 yuan as a strategic single product to be cultivated in the future, mainly in the group purchase channel. Since its listing in May this year, the market feedback has been positive; 2) Fully participate in market competition, implement classified management for dealers, link reward and punishment assessment with market health and scale increment, start to focus on adjusting the provincial capital market, and set up a marketing center soon; "One bottle and one yard" shall be implemented for cellar and above products for five years, tracking logistics information and seriously rectifying disorderly prices; 3) Focus on building group buying channels, start a large number of group buying and special dealers, and expand the sales incentive of high priced products. At present, products with more than 200 yuan account for 40%; 4) Strengthen publicity and promotion, shift the focus of cost investment from channels to consumers, do not blindly pursue the distribution rate, comprehensively promote the construction of effective outlets, and strengthen brand marketing and new media cooperation; 5) Outside the province, seize the development opportunities of the Yangtze River Delta, Beijing Tianjin Hebei and Dawan District, seek strategic cooperation with key dealers, recruit people in the sales territory and improve the quality level of the business team. 2021q1 marketing reform has entered the deep-water area. The company has made firm determination, clear direction and hit the point in every way; 2021q3 began to show initial results, exceeding the same period in 2019, and the performance ushered in an inflection point.
2. The market doubt is over interpreted, and the company value is not fully reflected. The company is the leading liquor producer in the Baijiu industry. The reported revenue of Shanggu well is twice that of the mouth. In addition, the trend of GU20, gu16 and Yingjia Dongzang series makes the market question the company's competitiveness in the province. However, the company's revenue basically maintained double-digit growth from 2016 to 2019; The revenue decline in 2020 is mainly due to the loss of sales during the epidemic freeze from February to April. After the Spring Festival in 2021, the company adjusted the market, and the channel inventory decreased from 2 months at the beginning of the year to 2 weeks. Excluding the impact of these special periods, the company has been growing steadily. In addition, due to the differences in sales models, there is a statistical gap between the income scale of kouzi and Gujing. The actual difference between them is not as large as reflected in the statements, and the profit scale is roughly the same. We hope that this report can bring a more comprehensive perspective to investors: 1) the company has rarely pressed goods from channels and does not smooth it between quarters. The growth is entirely due to the actual dynamic sales, resulting in large fluctuations in the performance of a single quarter. Predicting the future development of the company only based on the quarterly growth rate is easy to cause misjudgment; 2) Under the strong attack of Gujing, the company's marketing seems not radical enough. State-owned enterprises generally pursue "large-scale". Because of their private nature, the core demand is "sustainable development" and "growing" takes precedence over "growing". There is no difference between the company's large-scale business system and Gujing's in-depth marketing, Only adapted to the characteristics of different enterprises; 3) Most of the channel feedback information obtained by the capital market comes from Hefei. The company is relatively weak in the Hefei market, and sometimes it can not help generalizing. In fact, the company market outside the provincial capital is doing better; 4) The expansion of secondary high-end competition will accelerate, and the competition in the province is far from reaching the degree of one ebb and flow. The pressure of the company does exist, but we need to see the long-term trend. Brand concentration is good for Huijiu head enterprises, and the expansion growth brought by price upgrading can also provide at least twice the growth space in the provincial market.
3. The turning point has come, the logic of brand concentration and price upgrading remains unchanged, and the upward trend of the company is becoming more and more clear. The company's product quality is outstanding, and the flavor of "big and fragrant" is differentiated. There are loyal consumers inside and outside the province. The leading products have been selling well for more than 20 years, and can still maintain a benign favorable price and continuous volume. The company has a flexible private system, stable and pragmatic operation, clear thinking and long-term vision of the management. In order to stabilize the price, it does not hesitate to sacrifice the performance of 2021q1 and stop all sales promotion after the 15th day of the first month, showing a strong strategic determination. Although it has an impact on the short-term performance, the company's operation continues to improve in the long run. The dual price upgrade trend in Anhui market is obvious. As one of the leading brands of Anhui wine, on the one hand, the company can sink in the medium and high-end price through channels, constantly grab the share of other small and medium-sized real estate wines and accelerate brand concentration; On the other hand, the current secondary high-end of the company is about 40%, and the product structure is expected to be further optimized in the future. At present, the competition of secondary high-end is still relatively benign, and the price continues to expand, and the more competition, the more growth; Companies outside the province strictly implement the "one place, one policy", encourage large businesses in the province to "go global" and develop advantageous large businesses outside the province, focus on building group purchase channels and increase the proportion of medium and high-end enterprises. Overall, the company will still enjoy the double benefits of brand concentration and price upgrading in the future. The upward trend is clear, the price layout is more complete, and the achievements of marketing reform are expected to continue to be realized.
The fundamentals of the profit forecast and investment rating company are stable. In recent years, significant changes have taken place in the operation level, and the production capacity bottleneck has been broken through. The company has increased marketing investment and focused on the construction of group purchase channels. The strategic large single product and fragrance 518 is expected to become one of the main highlights in the future. 2021q3 performance ushered in an upward turning point, with improved fundamentals and a low base. There is a high probability of a "good start" in 2022. At present, the market expectation is quite poor. We are still optimistic about the long-term growth of the company under brand concentration and price upgrading. This year's repurchase has been successfully completed, and the implementation of incentives in the future will also bring positive catalysis. It is estimated that the EPS from 2021 to 2023 will be 3.01/3.75/4.60 yuan, corresponding to pe28 / 22 / 18 times, and the "buy" rating will be given for the first time.
Risk Tips 1) the epidemic situation repeatedly suppresses the demand of the industry; 2) Macroeconomic fluctuations hinder the process of consumption upgrading; 3) Intensified market competition in the province; 4) The increase of expense investment affects the profitability; 5) The expansion outside the province was less than expected.
