Southwest Securities: Give Pearl River Beer a buy rating

2021-10-25Zhu Huizhen of Southwest Securities Co., Ltd. conducted a study on Pearl River Beer and released a research report "Product Upgrading Continues to Advance, Revenue Growth Remains Stable", this report gives a buy rating to Pearl River Beer, and the current stock price is 9.48 yuan.

Pearl River Beer (002461)

Event: The company released the third quarter report of 2021, achieving revenue of 3.72 billion yuan, an increase of 6% year-on-year; and achieving a net profit attributable to the mother of 590 million yuan, an increase of 17.8% year-on-year. Among them, 21Q3 achieved revenue of 1.5 billion yuan, an increase of 0.1% year-on-year, and achieved a net profit attributable to the mother of 280 million yuan, an increase of 9.7% year-on-year, and the performance of Q3 was slightly less than market expectations.

Product upgrades continued to be optimized, and revenue growth remained stable. In terms of volume, the third quarter was subject to the frequent occurrence of scattered epidemics, and the demand of various channels still needed to be repaired; in addition, the company's mid-range zero-degree Pro product market performance was less than expected, the mid-end sales volume declined slightly, and the company's overall sales volume was expected to maintain a low unit growth rate; in terms of price, black gold pure raw sales maintained well, the overall proportion of pure raw sales is expected to exceed 45%, the superimposed company's canning rate level has steadily increased, and the upward trend of tonnage prices has been determined. In the future, with the continuous advancement of the company's product structure upgrade, the company's profitability may maintain steady growth.

The upward cost of raw materials superimposed on the impact of the epidemic, and the Q3 revenue side was slightly under pressure. 21Q3 Gross margin was 49.1%, down 2.4pp year-on-year, of which Q3 gross margin was 51.4%, down 4.8pp year-on-year. Affected by the nationwide epidemic, the recovery of demand for fresh drinking channels is not optimistic; in addition, this summer's rain is more and the high temperature weather is less, superimposed on the high base effect of the epidemic recovery in the same period last year, resulting in slight pressure on the Q3 revenue side; the cost end pressure is mainly caused by the continuous rise in the price of raw materials such as glass and packaging materials. In terms of expense ratio, the sales expense ratio remained stable, down 0.9pp to 16.8% year-on-year; the company's operating efficiency continued to improve, and the management expense ratio decreased by 1.1pp to 6.3% year-on-year; and the research and development expense ratio was 11.5%, down 2.4pp year-on-year. The product structure continued to be optimized, driving the overall net profit margin of 21Q3 up 1.7pp to 16.3%.

The short-term epidemic situation is stable and demand needs to pick up, and product upgrades and channel reforms ensure long-term performance. In the short term, with the further improvement of vaccination rates, the impact of the epidemic will continue to decrease, and consumer demand can be expected to pick up; in addition, the price of raw materials that continue to be high will eventually fall, and the easing of cost pressure will help release the company's profit space. In the medium and long term, the company's performance improvement mainly benefits from: 1) The product upgrade trend is good: 97 black gold pure life is still in a period of rapid development, and the proportion of 97 pure life this year is expected to account for more than 20% of the total sales volume of pure life; the new Pearl River Light performs well and is expected to become the second mid-range large single product outside zero. 2) Steady progress of channel reform: the company maintains the advantages of circulation channels in the province, increases the cost of expanding catering channels, with the help of the high premium rate at the catering end, the amount of high-end beer is expected to accelerate; the province continues to build the first brand, and the in-depth distribution system helps the company consolidate its leading position in the province. 3) The cultural industry has boosted the growth of the main beer industry, and the Pipa Dai Cultural and Art Zone and the "Brewery" project have become cultural landmarks in Guangdong Province, stimulating the consumption of fresh drinks and continuing to occupy the minds of consumers. The company's market share in the province is stable, product upgrading and cultural industry two-wheel drive, the company's long-term performance growth can be expected.

Profit forecasts and investment advice. It is expected that the EPS for 2021-2023 will be 0.30 yuan, 0.35 yuan and 0.42 yuan, respectively, corresponding to dynamic PE 30 times, 26 times and 22 times, respectively, maintaining the "Buy" rating.

Risk Warning: The risk of fluctuations in raw material prices, the risk of recurrence of the new crown epidemic

A total of 10 institutions have given ratings in the last 90 days, with 7 buy ratings and 3 overweight ratings; the average target price of institutions in the past 90 days has been 11.1; the Securities Star Valuation Analysis Tool shows that Pearl River Beer (002461) has a good company rating of 3 stars, a good price rating of 2.5 stars, and a valuation comprehensive rating of 3 stars.