LAO BAI GAN JIU(SH:600559)2024-03-10 16:00Investment Rating - The report assigns an "OUTPERFORM" rating to the company with a target price of Rmb 27.46 [2][3]. Core Views - The company is positioned as a leading player in the Hebei liquor market, with a strong recovery in revenue and profit driven by structural upgrades and cost efficiency improvements. The revenue and net profit CAGR from 2020 to 2022 were 13.7% and 32.3%, respectively, showing a trend of accelerating growth [3][4][20]. - The company has successfully implemented a high-end strategy, with high-end products (priced above Rmb 100) accounting for 53% of revenue in 2022, up from 36% in 2018 [4][36]. - The competitive landscape in Hebei is characterized by strong external brands capturing over 70% of the market share, while local brands, including the company, are increasing their market presence, with local liquor market share rising to over 20% [3][35]. Summary by Sections 1. Company Overview - The company is the only publicly listed liquor company in Hebei, with its main brand, Hengshui Laobaigan, recognized as a regional famous liquor. The company has expanded its portfolio through acquisitions, including Fenglian Liquor and several other brands [3][13]. - The company has undergone a significant transformation since its establishment, focusing on high-end products and improving employee motivation through a stock incentive plan covering 207 key personnel [4][15]. 2. Market Dynamics - The Hebei liquor market is approximately Rmb 300 billion, with a strong drinking culture and rapid market expansion driven by product upgrades. The local liquor market is competitive, with many strong brands present [3][34]. - The company holds about 10% market share in Hebei, with a focus on increasing its presence in higher price segments, particularly in the mid to high-end market [35][36]. 3. Financial Performance - The company forecasts revenues of Rmb 52.26 billion, Rmb 60.57 billion, and Rmb 69.51 billion for 2023, 2024, and 2025, respectively, with year-on-year growth rates of 12.3%, 15.9%, and 14.7% [4][5]. - The net profit is expected to be Rmb 6.34 billion, Rmb 8.37 billion, and Rmb 10.41 billion for the same years, with a notable increase in 2024 and 2025 [4][5]. 4. Brand and Product Strategy - The company operates multiple brands, with Hengshui Laobaigan and Shiling Liquor being key contributors to revenue. In 2022, these brands contributed 46% and 16% to total revenue, respectively [4][25]. - The high-end product strategy has led to a significant increase in gross margin, with Shiling Liquor achieving a gross margin of 84.9% in 2022, significantly higher than the overall company average [25][29]. 5. Cost Management and Efficiency - The company has made substantial improvements in cost management, with sales expense ratios decreasing to 30.3% in 2022 and 30.8% in the first half of 2023, reflecting effective cost control measures [4][29]. - The focus on reducing costs while maintaining marketing effectiveness is expected to enhance profit margins further [49].