LUZHOU LAOJIAO(000568)：PREANNOUNCED RESULTS IN LINE;A LEADER IN THE HIGH-END MARKET WITH VISIBLE EARNINGS UPSIDE

Preannounces 2021 earnings up 30.7% YoY
Luzhou Laojiao preannounced its 2021 results: Revenue increased an estimated 22.4% YoY to Rmb20.38bn, net profit attributable to shareholders rose by approximately 30.7% YoY to Rmb7.85bn, and recurring attributable net profit possibly grew 29.4% YoY to Rmmb7.75bn. In 4Q21, revenue rose an estimated 24.1% YoY to Rmb6.27bn, attributable net profit increased by approximately 32.2% YoY to Rmb1.57bn, and recurring attributable net profit possibly grew 25.4% YoY to Rmb1.47bn. The firm’s preannounced revenue and recurring net profit are in line with expectations, thanks to compensation it received from winning a lawsuit that brought relatively high attributable net profit.
Trends to watch
Revenue and recurring net profit in line; attributable net profit relatively high thanks to compensation received. In 4Q21, the firm’s revenue growth was largely on par with its recurring attributable net profit growth. We think that National Cellar, Luzhou Laojiao’s high-end product, remains a major boost to the firm’s growth. However, sales expenses were mainly recognized in 4Q21, as usual. According to its announcement on December 30, the firm received nearly Rmb100mn of compensation and interest, driving up attributable net profit in 2021.
National Cellar led overall growth; series products resumed growth. Luzhou Laojiao’s expansion has accelerated both regionally and nationally, led by the steady growth in sales of high alcohol by volume (ABV) National Cellar products, benefiting from the expansion of products priced at over Rmb1,000/bottle. Low-ABV National Cellar products also recorded fast growth in main markets such as northern China, thanks to the expansion of higher-end products. The firm grew rapidly in eastern and northern China markets. At the same time, market demand for series products also increased notably, with positive growth momentum of Jiaoling, Tequ in southwestern and eastern China. Since Tequ’s upgrade in 2020, Luzhou Laojiao has been controlling product supply to raise its price: Tenth generation Tequ surged to Rmb300/bottle from Rmb100/bottle, which the firm seeks to raise to over Rmb400/bottle in the medium term. We believe that as Luzhou Laojiao eases supply constraints of Tequ, its growth will exceed that of National Cellar in 2022 on a low base in 2021. In addition, Luzhou Laojiao launched a new product, Laojiao 1952, in 2021, which is mainly sold under the National Cellar brand. We believe the product will contribute additional revenue this year.
The firm enjoys a flexible organizational mechanism; it is a leader with visible earnings upside in the market for high-end baijiu products. Luzhou Laojiao has a flexible organizational mechanism and channel model. It has recorded a rapid pay-off of its marketing expenses, reflecting the high efficiency of the sales team, in our view. We believe that its earnings growth will accelerate after the firm’s equity incentive plan takes effect. Over the long term, we think as a leader in the market for high-end baijiu products, Luzhou Laojiao enjoys visible earnings upside backed by its strong brand competitiveness.
Valuation and recommendation
Given the strong growth momentum of National Cellar, we raise our attributable net profit forecasts 2.2% to Rmb7.85bn for 2021, 3.2% to Rmb10.07bn for 2022, and 2.8% to Rmb12.54bn for 2023. We maintain our target price of Rmb266, implying 39x 2022e and 31x 2023e P/E, offering 29.4% upside. The stock is trading at 30x 2022e and 24x 2023e P/E. We maintain an OUTPERFORM rating.
Risks
Slower-than-expected adjustments for series products; disappointing nationwide expansion of National Cellar.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。