Anhui Kouzi Distillery's "Exploration Flower": the income gap with the top two widened, and the performance reservoir continues to "shrink".

This article is reproduced from Securities Star, author: Liu Fengru In the past few years, among the "Four Golden Flowers" of Huaijiu, the leading position has been held by Anhui Gujing Distillery (000596.SZ), while Anhui Yingjia Distillery (603198.SH) and Anhui Kouzi Distillery (603589.SH) have been "rotating" between second and third place. From 2017 to 2021, Anhui Kouzi Distillery has always maintained the second position in Huaijiu, but in 2022, Anhui Yingjia Distillery surpassed Anhui Kouzi Distillery. That year, Anhui Kouzi Distillery clearly stated its strategic goal of "accelerating into the top tier of national Baijiu". According to public reports, in 2022, Anhui Kouzi Distillery hired the internationally renowned consulting firm McKinsey to provide a five-year strategic plan. After a year of effort, the situation did not turn out as well as expected. According to the released 2023 annual report, last year Anhui Kouzi Distillery achieved revenue of 5.962 billion yuan and a net profit attributable to shareholders of 1.721 billion yuan, representing year-on-year growth of 16.1% and 11.04%, respectively. Despite achieving double-digit growth in revenue and net profit attributable to shareholders, the company did not meet its expected target for 2023 - "revenue growth of no less than 18%". In the secondary market, Anhui Kouzi Distillery's stock price continued to decline from May 22nd to May 30th. After a slight recovery on May 31st, it turned green again on June 3rd. This kind of "one-day rise, one-day sharp decline" trend looks very discouraging. Securities Star noted that facing fierce competition, Anhui Kouzi Distillery spared no effort to seize the market by increasing expenses, especially in consulting services. However, the reality is that Anhui Kouzi Distillery not only did not reclaim the second position in Huaijiu, but also further widened the "gap" with Anhui Gujing Distillery and Anhui Yingjia Distillery in 2023. Furthermore, as a "reservoir" of listed Baijiu companies, Anhui Kouzi Distillery's contractual liabilities have been decreasing for the fourth consecutive year, reaching only half the level of the same period in 2020 in 2023. Profit growth rate last year was lower than revenue growth rate Anhui Kouzi Distillery has been engaged in the production and sale of Baijiu since its establishment, producing and selling series of brand products such as Anhui Kouzi Distillery, Laokouzi, Kouzifang, and Kouzijiu. Financial data shows that in 2023, Anhui Kouzi Distillery achieved operating income of approximately 5.962 billion yuan, a year-on-year increase of 16.1%; the corresponding net profit attributable to shareholders increased by 11.04% to 1.721 billion yuan; and the non-recurring net profit was 1.698 billion yuan, a year-on-year increase of 10.75%. Regarding the reason for last year's revenue growth, Anhui Kouzi Distillery stated that it was mainly due to the increase in sales revenue of high-end products. From the financial report, Anhui Kouzi Distillery's revenue mainly comes from three major products: high-end Baijiu, mid-range Baijiu, and low-end Baijiu. In 2023, sales revenue of high-end Baijiu reached 5.678 billion yuan, an increase of 16.58% year-on-year; sales revenue of mid-range Baijiu was 76.31 million yuan, a decrease of 19.76% year-on-year; sales revenue of low-end Baijiu was 94.73 million yuan, a slight increase of 0.72% year-on-year. While high-end products achieved growth, sales of mid-range Baijiu at Anhui Kouzi Distillery declined. Some analysts believe that due to limited brand influence, the high-end products have limited effect on the mid-to-low-end products. Although Anhui Kouzi Distillery achieved double-digit growth in revenue and net profit attributable to shareholders last year, the profit growth rate was lower than the revenue growth rate. Moreover, based on previously announced data, Anhui Kouzi Distillery budgeted operating income of approximately 6.059 billion yuan in 2023, an increase of 18% compared to 2022. It now appears that this target was not met. Against this backdrop, Anhui Kouzi Distillery has set a sales budget target for 2024 to achieve an 18% year-on-year increase in operating income compared to 2023. Securities Star noted that although Anhui Kouzi Distillery did not meet its target for 2023, it did not affect the unlocking of the first phase of the "golden handcuffs" plan. According to the equity incentive plan announced by Anhui Kouzi Distillery in March 2023, the requirement for the first phase of unlocking 40% of the shares was a 15% year-on-year growth in revenue in 2023, or a 15% year-on-year growth in non-recurring net profit after excluding the impact of share-based payments. Last year, Anhui Kouzi Distillery revenue grew by 16% year-on-year, meeting the performance criteria. Income gap with the two major Huaijiu companies widening A comparison with its counterparts in Huaijiu shows that the income gap between Anhui Kouzi Distillery and its two main competitors, Anhui Gujing Distillery and Anhui Yingjia Distillery, is widening. Among the "Four Golden Flowers" of Huaijiu, Anhui Gujing Distillery has firmly held the leading position in Huaijiu and has already entered the two hundred billion yuan camp. According to the 2023...In the financial report for the year, Anhui Gujing Distillery achieved operating income of 20.254 billion yuan, a year-on-year increase of 21.18%; net profit attributable to shareholders was 4.589 billion yuan, a year-on-year increase of 46.01%.The 2023 annual report of Anhui Yingjia Distillery shows that the company achieved operating income of 6.72 billion yuan last year, an increase of 22.07% year-on-year; net profit attributable to the parent company was 2.288 billion yuan, an increase of 34.17% year-on-year. In terms of revenue growth, both Anhui Gujing Distillery and Anhui Yingjia Distillery in 2023 had revenues exceeding 20%, while Anhui Kouzi Distillery lagged behind slightly. As far back as 2017, Anhui Kouzi Distillery once held the second position in the Huijiu industry. In 2017, Anhui Kouzi Distillery achieved revenue of 3.603 billion yuan, higher than the revenue of Anhui Yingjia Distillery at 3.138 billion yuan, but lower than the revenue of Anhui Gujing Distillery at 6.968 billion yuan. In 2022, Anhui Kouzi Distillery was surpassed by Anhui Yingjia Distillery. That year, Anhui Kouzi Distillery had revenue of 5.135 billion yuan, while Anhui Yingjia Distillery had revenue of 5.505 billion yuan, with a revenue gap of 0.37 billion yuan. In 2023, the revenue gap between Anhui Kouzi Distillery and Anhui Yingjia Distillery widened to 0.758 billion yuan, doubling the gap. The revenue of Anhui Gujing Distillery in 2023 was more than three times that of Anhui Kouzi Distillery. This growing disparity continues to widen. In the first quarter of this year, Anhui Gujing Distillery had revenue of 8.286 billion yuan, Anhui Yingjia Distillery had revenue of 2.325 billion yuan, and Anhui Kouzi Distillery had revenue of 1.768 billion yuan, with gaps of 6.518 billion yuan and 0.557 billion yuan compared to the first two, respectively, continuing to widen year-on-year. Industry insiders believe that the revenue scale of Anhui Kouzi Distillery lags behind Anhui Gujing Distillery and Anhui Yingjia Distillery, which is related to the national competition among all liquor companies. From 2020 to 2023, the revenue share of Anhui Kouzi Distillery in Anhui Province was 80.1%, 82.1%, 82.43%, and 83.81% respectively. In the four years, its revenue share in Anhui Province increased by a total of 3.71 percentage points. During the same period, the revenue share of Anhui Kouzi Distillery from outside Anhui Province was 19.9%, 17.9%, 17.57%, and 16.19% respectively, decreasing by 3.71 percentage points in four years. It is evident that Anhui Kouzi Distillery performs better in Anhui Province, but also exposes weaknesses in its national market layout. Contractual liabilities have decreased for four consecutive years. Public information shows that since 2022, Anhui Kouzi Distillery has set the strategic goal of "accelerating the realization of a hundred billion Kouzi and entering the forefront of national white liquor. According to public reports, McKinsey has been serving Anhui Kouzi Distillery since 2022, described as its "strategic partner." The two parties jointly formulated strategic goals: in the next five years, they aim to strive for the top position in sales, brand influence, and channel preference in the Huijiu industry. Two years have passed, and Anhui Kouzi Distillery has not only failed to become a top player in the Huijiu industry, but has fallen to third place. It is not difficult to see from the 2023 annual report of Anhui Kouzi Distillery that the increase in expenses has been a major factor affecting its performance. In 2023, Anhui Kouzi Distillery had management expenses of 0.407 billion yuan, a year-on-year increase of over 50%. In the same period, Anhui Yingjia Distillery's management expenses were 0.209 billion yuan, an increase of 9.3% year-on-year. Anhui Kouzi Distillery stated that the increase in management expenses is related to depreciation and amortization, consulting services fees, and equity incentive expenses. Breaking it down, under the management expenses of Anhui Kouzi Distillery last year: depreciation and amortization expenses were 0.132 billion yuan; consulting services fees were 38.2691 million yuan; and equity incentive expenses were 33.8861 million yuan, with no such expenses in the previous year. It can be seen that the consulting services fees had the greatest increase. It is noted that over the course of three years, Anhui Kouzi Distillery has been increasingly willing to spend money on consulting services. Data shows that in 2021, Anhui Kouzi Distillery's consulting services fees were only 3.0124 million yuan, which increased to 12.8887 million yuan in 2022. In 2023, the expenditure on consulting services fees had increased by 11 times compared to 2021. On the other hand, in 2023, Anhui Kouzi Distillery's sales expenses were 0.827 billion yuan, exceeding the 0.581 billion yuan of Anhui Yingjia Distillery. This indicates that facing fierce competition within the province, Anhui Kouzi Distillery needs to increase expenses to capture market share. As the "reservoir" of listed liquor companies, thecontractDebt to a certain extent reflects the market appeal and channel bargaining power of the liquor enterprise, and is also an important manifestation of the willingness of distributors to make payments. Corresponding to Anhui Kouzi Distillery, the willingness of channels to take goods has not increased, but has instead declined. Securities Times noted that by the end of 2023, the contract liability balance of Anhui Kouzi Distillery was 397 million yuan, decreasing for the fourth consecutive year, only half of the level at the same period in 2020. By the end of the first quarter of 2024, the contract liability balance was 375 million yuan, further decreasing from the previous year. Recently, at the 2023 annual shareholders' meeting of Anhui Kouzi Distillery, Secretary Xu Qinxian predicted the development of the liquor industry in 2024, stating that this year will be more challenging than the previous year, and liquor production capacity will continue to decline, which is related to consumption structure. Xu Qinxian also mentioned that in the face of the continuous decline in liquor industry production capacity and changes in the consumption habits of young consumers, nationalization is an inevitable trend. In the past two years, Anhui Kouzi Distillery has expanded its presence in markets outside the province, with layouts in cities such as Xi'an, Wuhan, Changsha, Jinan, and Fuzhou, but the scale is relatively small. Anhui Kouzi Distillery encourages distributors to be bold and provides necessary support to promote market expansion, leading to an increase in marketing and management expenses. However, Xu Qinxian believes that in the current market environment, promotional investment is necessary. In the future, Anhui Kouzi Distillery will gradually move forward according to established plans and goals.