New management to increase the wholesale price
? Wuliangye reported that sales grew 15.5% yoy to Rmb66.2bn in FY21, with net profit
up by 17.2% yoy to Rmb23.4bn, in line with our expectations.
? In 1Q22, sales increased by 13.3% yoy to Rmb27.6bn, with net profit up by 16.1% yoy
to Rmb10.8bn, reflecting the Company’s resilient business during the Covid situation.
? Management guided double-digit yoy sales growth in FY22F. We expect the new senior
management team with long-term industry experience to make various efforts to push
up the wholesale price of Wuliangye in FY22F.
? Reiterate Add with new DCF-based TP of Rmb287.
Classis Wuliangye to increase the ASP and margins
The Wuliangye brand achieved sales growth of 11.5% yoy to Rmb49.1bn in FY21. Sales
volume was up by 3.8% yoy to 29.2k tons and the ASP was up by 7.4% yoy to Rmb1,628k/t.
The ASP increase was driven mainly by the strong sales growth of its newly launched highend product Classic Wuliangye, with a selling price above Rmb2,000/bottle and the sales
contribution improvement of group customers. Sales of the series brands grew by 50.7%
yoy to Rmb12.6bn in FY21, with ASP up by 30.7% yoy to Rmb83k/t and sales volume up
by 20% yoy. After two years of product structure reforms for the series brands, the
Company is focusing on the mid- to high-end series brand products to drive up growth.
Driven by the ASP improvement, the GPM expanded by 0.5pts yoy to 60.6% in FY21, and
the OPM improved by 0.7pts yoy to 46.4%.
New management to raise the wholesale price in FY22F
Although the Company achieved good results in 1Q22, we still expect 2Q22F sales to be
partially impacted by the Omicron outbreak in Shanghai and other cities. To support its
distributors, management extended the payment period for distributors, which led to the
accounts receivable increasing by 93.6% yoy to Rmb28.3bn in 1Q22. In addition, the new
senior management team has taken various measures to drive up the wholesale price of
the Wuliangye brand liquor. Currently, the first-layer wholesale price is stable at
Rmb970/bottle, with around one month’s channel inventory. Shipments of Classic
Wuliangye have been suspended temporarily so that the Company can restructure its
distributor network. We now expect the Company to achieve 12.6% top-line growth with
net profit up by 14.2% yoy in FY22F. Management said that when the Covid situation in
Shanghai is well controlled, they will launch more stimulus policies for distributors to take
advantage of the recovery in demand.
New channel and new products to drive growth
After the channel restructuring for Classic Wuliangye, this new high-end product will focus
on large group customers and big e-commerce platforms to drive growth. The Company
set up new retail company in 2020, which serves mainly the online channel, and in 2021,
Wuliangye set up its own flagship store on TikTok. Management said it is also considering
launching Wuliangye’s own app to further drive online sales. Wuliangchu is an important
mid-end brand under the series brands. In March 2022, the Company launched a new star
product, Mingmeng Chun, under the Wuliangchu brand to drive its product mix. In 2022,
Mingmeng Chun will be launched in the Jiangsu, Sichuan, Shanghai and Zhejiang markets.
Reiterate Add with new DCF-based TP of Rmb287
We cut our FY22F and FY23F earnings forecasts by 2.3% and 2.4%, respectively, to reflect
the Omicron impact. However, we reiterate our Add rating, since we believe Wuliangye will
continue to improve its pricing system and brand image in FY22F. The high-end Wuliangye
liquor production ratio is currently 20%, and management aims to improve this. The
Company is also considering launching a new share option plan to increase motivation.