Key takeaways from annual distributor conference
- Wuliangye held its 27th annual distributor convention in its headquarters in Yibin city on 18 Dec; over 1,000 distributors and 50 investors attended this event.
- Management said it is considering to rise the ex-factory price of the 8th generation Wuliangye product; we think could be a near-term re-rating catalyst.
- We currently forecast Wuliangye’s sales and net profit to grow 12.8% each in FY24F, mainly driven by mix upgrade and price hikes for key products.
- Reiterate Add and DCF-based TP of Rmb214 (WACC: 10.2% and TG:3%).
Distribution channel development in 2023
During the conference, general manager Mr Jiang Wenge shared Wuliangye’s distribution channel development in 2023. He said the company has so far this year recruited 100 new distributors under the Wuliangye brand, and added 26,000 incremental sales points, with the number of its exclusive Wuliangye stores reaching 1,700, covering over 300 cities nationwide as at Dec 2023. Meanwhile, in the corporate purchase channel, Wuliangye’s sales persons had together with its distributors visited 5,000 large corporates in China so far in 2023. Also, during the year, Wuliangye developed exclusive products that would only be sold via the online channel; management said that YTD, over 600m customers had purchased from the online channel Wuliangye’s gift package called “Haoshi chenshuang”, which sells at a retail price of Rmb2,299 and includes two bottles of 52°Wuliangye products. It also said during the year, further development of its distribution channel led to strong sales of Wuliangye 1618 and 39°Wuliangye.
Wuliangye considering raising prices of key products in FY24F
In their address during the event, Chairman Mr Zeng Congqing and General Manager Mr Jiang Wenge said the company would consider appropriately raising the ex-factory price of 8th generation 52°Wuliangye in FY24F but did not provide a specific date. Mr Jiang Wenge said for 8th generation Wuliangye, 1) the company will further optimise the supply volume allocation in each distribution channel in 2024F and that the overall supply of this product will not increase yoy; 2) the planned supply volume of 8th generation Wuliangye going to the traditional distributor channel will not change in 2024, but the unplanned supply volume might vary to ensure better first-layer wholesale prices; the company’s typical proportion of planned and unplanned supply volume to the traditional distributor channel is usually 60:40, based on our estimate; 3) the company will promote more products in the traditional distributor channel, i.e. Wuliangye 1618 and 39°Wuliangye to improve its product mix. Meanwhile, the company plans to further raise the sales contribution from direct sales and corporate purchase channels in 2024F (42% combined sales contribution in 1H23) to improve its profitability.
FY24F sales growth mainly driven by ASP increase, in our view
Post the event and based on our channel checks, we expect Wuliangye’s overall average selling price to rise yoy in FY24F. As the demand from the business consumption channel is still recovering, management said it expects steady sales growth in FY24F. We expect Wuliangye to control its volume supplied to the market in FY24F to lift its overall ASP.
Reiterate Add with unchanged DCF-based TP of Rmb214
We reiterate Add as we believe that as Wuliangye is the second-largest premium baijiu player in China (in terms of sales value in 2022), is well positioned to weather the current macro weakness given its strong brand and distributor loyalty. Downside risks include 1) weak macros, which would negatively impact baijiu demand and Wuliangye’s revenue growth, 2) intensifying competition for baijiu products with a retail price of c.Rmb1,000 per bottle (c.60-70% of Wulaingye’s sales in this price range), and 3) failure to penetrate new markets. A re-rating catalyst would be stronger-than-expected sales growth in FY24F.
