\u3000\u3000 Eastroc Beverage (Group) Co.Ltd(605499) (605499)
Ping An View:
Eastroc Beverage (Group) Co.Ltd(605499) after entering the market with differentiated brand positioning and running through the model market of Guangdong, it has actively sought national expansion since 2013. In 2015, it seized the opportunity period of industry development, increased brand tonality with high-density marketing investment, intensified all-channel cultivation and strengthened channel thrust. The competitiveness of brands and channels is stronger than that of brands in the same echelon. The path of capacity expansion in the next three years is clear, The process of nationalization is expected to accelerate and there is broad space for long-term growth. We estimate that the company’s net profit attributable to the parent company from 2021 to 2023 will be RMB 1.21/14.4/1.92 billion, eps3.4% 02 / 3.59/4.81 yuan. Referring to monster’s growth valuation center in the United States, the company is given 50xpe in 2023, with a corresponding target price of 240.45 yuan, 40% higher than the closing price on January 18. It is covered for the first time and given a “recommended” rating.
Dongpeng special drink brand and channel strength lead the second echelon. We believe that the key to the success of late developing enterprises in the energy beverage industry lies in differentiated positioning and strategic resource focus. The company’s strategy is clear, based on product strength, and constantly iterates brand marketing and channel system to match its own development stage. 1) In terms of products, the company started with differentiated product positioning, followed the national strategy after running through the model market in Guangdong, continued to iterate the product matrix, highlighted the cost performance of 500ml gold bottle, diversified packaging specifications, and constantly introduced new products to improve the brand tone; 2) In terms of brand marketing, in the early stage, the company positioned itself as a low-end brand. In 2015, the company seized the opportunity of Red Bull’s internal friction to promote the rejuvenation and upgrading of the brand. In 2019, it implemented saturation marketing to strengthen the high-density coverage of direct consumers; In terms of promotion, it promotes terminal dynamic sales through code scanning to win red envelopes, one yuan enjoyment, terminal store red envelope promotion and other activities. Compared with the same echelon brand, the company pays more attention to brand construction and greater marketing investment; 3) From the perspective of channel system, the company’s channels intensively cultivate the core market, enhance the control and transparency, give higher channel profit margin and strengthen the thrust through digital enabling channel management, promote the refinement of channel structure and market-oriented reform of incentive mechanism by the end of 2018, and effectively promote the market volume outside the Province. Compared with red bull, the company cuts into the market by strengthening the thrust through high channel profit margin; Compared with the echelon brands of physical energy and Lehu, the company is superior in channel resource investment and management fineness.
Medium term outlook: the company will be in the period of rapid national expansion in the next three years. 1) In terms of sales volume, according to the calculation of the production line under construction and the ramp up progress of production capacity, the production capacity is expected to reach 210.4/243.9/2.752 million tons in 21-23 years. The encryption of core market channels and the acceleration of expansion in Southwest China ensure the full digestion of production capacity. In terms of products, Dajinping has outstanding competitive advantages and is the main single product in the national strategy. It is expected that the sales growth rate in 21-23 years will be 60% / 35% / 25% respectively; 2) In terms of price, after the adjustment of the price system in 2019, the company has formed a product echelon with terminal retail guide prices of 2 yuan / box, 3 yuan / bottle, 4 yuan / can and 5 yuan / bottle. At present, the positioning of each product is clear, and it is expected that the medium and short-term price system will remain stable. The confirmation of the unit price at the report end is mainly affected by the promotion rebate, and it is still in the period of national expansion in the next three years, It is expected to maintain a high rebate for channels outside the province and a large promotion effort. It is expected that the unit price of large gold bottles in 21-23 years will be the same as that in 20 years, maintaining 4203 yuan / ton; 3) In terms of cost, the company’s lock price at the beginning of the year has reduced the purchase price in the whole year of 21 year on year, and the cost side pressure will be reflected in 22 years. At the same time, with the production lines of Huapeng and Yupeng put into operation in 21-22 years, the scale effect will be gradually reflected; 4) At the expense rate side, it is expected to maintain a high investment in publicity during the national expansion period, and the transportation expense rate is expected to decline after the capacity outside the province reaches its capacity.
From monster in the United States to see the end of the second dragon in the energy beverage industry. Monster was founded in 2002 and achieved late success by means of differentiation strategy. Its sales / retail share surpassed Red Bull in 2008 and 2018 respectively. Its products push through the old and bring forth the new to meet the diversified needs of consumers, and its cost performance is outstanding. Brand marketing focuses on edge extreme sports and red bull to distinguish. The channel side relies on the distribution networks of Budweiser, Coca Cola and other giants to improve efficiency; The profitability continued to improve after the maturity period. After monster entered the maturity period in 2013, the gross profit margin continued to increase, and the operating expense rate decreased for a long time under the embodiment of scale effect, and the net profit margin increased from 15% in 2013 to 31% in 2020; In terms of valuation, the price earnings ratio centers of monser in the growth period / mature period are located at 48x / 36x respectively.
Long term space: Eastroc Beverage (Group) Co.Ltd(605499) long term profit space reaches 5 billion yuan. In terms of income space, from the three aspects of overseas per capita benchmarking, per capita consumption in different regions and store efficiency, China’s energy beverage industry has more than doubled the capacity expansion space, reaching 63-70 billion yuan. Both Eastroc Beverage (Group) Co.Ltd(605499) and monster have entered into and embraced the mainstream groups of their respective markets with differentiated positioning. Monster’s market share in the United States has been stable at about 37% in recent years, Assuming that Eastroc Beverage (Group) Co.Ltd(605499) will account for 30% of the market in the future, the corresponding income space is 19-21 billion yuan; In terms of profit space, the growth path of monster in the second round will significantly increase the net interest rate with the stability of the industry pattern and the embodiment of the scale effect of the company entering the mature stage. Compared with the current monster and Eastroc Beverage (Group) Co.Ltd(605499) profit indicators, we believe that there is a large room for improvement in Eastroc Beverage (Group) Co.Ltd(605499) net interest rate. Assuming that it will reach 25% in the future, the corresponding profit space will be 5 billion yuan.
Risk tips: 1) the industry demand is less than expected. The energy beverage industry is still in the growth stage, and the demand boom is dominant in various categories of soft drinks. If the demand boom of the energy beverage industry in the future is less than expected, the Eastroc Beverage (Group) Co.Ltd(605499) growth will be squeezed; 2) Red Bull’s internal friction triggered a price war. If the price war between Thailand Tiansi and Huabin Red Bull is triggered to compete for share and the industry competition intensifies, it will have a negative impact on the brand profits of the second echelon; 3) The dispute over red bull’s trademark right was settled. If the follow-up dispute over red bull’s trademark right ends, it is expected that red bull will increase its investment in publicity and squeeze the brand share of the second tier; 4) The national expansion of the company was less than expected. The company’s core market, such as Guangdong, has become saturated. If the national expansion is less than expected, the growth space will be limited.
