Morningstar | Yanghe’s 2018 Preliminary Profits in Line; Shares Remain Attractive to Our CNY 136 FVE
Wide-moat Jiangsu Yanghe Brewery, or Yanghe, reported 2018 full-year preliminary results largely in line with our forecasts, with revenue and operating profit up 21% and 22% year on year, respectively, to CNY 24.1 billion and CNY 10.8 billion. As we expected, fourth-quarter revenue growth decelerated to 3.8% down from a 24% increase in the first three quarters, owing to the company’s shipment controls strategy to ensure retail inventory level is healthy. Meanwhile, fourth-quarter operating profit was flat from last year and operating margin came down 1.7 percentage points as a result of higher advertising and marketing expense ratio due to brand building for future growth.We expect its premium liquor product, Blue of Dream, to have grown 50% year on year in 2018, particularly with the growth from outside of Jiangsu market exceeding 70%. The mix from the Blue of Dream is estimated to increase to more than 30%. Meanwhile, the price hikes of Blue of Sky and Blue of Ocean through new packaging also improved its profitability.
We retain our wide-moat rating and maintain our fair value estimate at CNY 136 per share. Although the negative consumption sentiment somehow affected the consumer demand due to the U.S.-China trade tensions since the second half of 2018, we believe Yanghe will accelerate its profits in the medium term, driven by the strong sales growth of its premium liquor Blue of Dream, while mid-end liquor Blue of Sky and Blue of Ocean will grow moderately. While we expect the revenue growth in Jiangsu Province to slow down (CAGR of 7% in 2019-22), its strong brand recognition and aggressive sales strategy will boost the revenue growth outside of Jiangsu market (CAGR of 13.5% in 2019-22).
Despite the share price increasing 22% year to date due to positive sentiment from the easing trade tensions, we think the shares remain undervalued at current levels, trading at a 15% discount to our fair value estimate.
Jiangsu Yanghe Brewery Joint-Stock Co., Ltd. is a China-based company, principally engaged in the production and distribution of liquor and related products. The Company produces liquor products and red wine products. The Company's major liquor offerings include Yanghe, Shuanggou and Siyang series. The Company primarily distributes its products within domestic markets, with Jiangsu Province as its main market.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.