The world turns, but consumption endures.
The most popular logic is that people can not earn money, but they must consume. The long-term and sustained demand has driven the market dominated by liquor, food and medicine, and Kweichow Moutai, Proya, Pien Tze Huang, Haitian Flavor, Wuliangye and other leading students lead the market.
However, the top students are also divided into three, six, nine and so on, and the continuous and stable cash flow allows them to widen the gap.
Cash flow can be broken down into the following 11 types:
Among them, the "cow type" of "plus or minus plus" is the most favorite one of investors, because such a company is like a cow that eats grass and produces fragrant milk!
Looking at the entire A-shares, Proya, Haitian Flavor, Fuyao Glass and other companies are hovering between "cows" and "poor cows", and Kweichow Moutai has become a "poor cow" due to a large number of dividends to shareholders in the past two years, and there may be a risk of weaning if it continues.
There was a loud bang in the sky, and the "second child" made a shining debut! Today, Wuliangye has succeeded Moutai and become the new cash cow of A-shares.
Next, we will analyze the sustainability of Wuliangye's future cash flow from three aspects: cash flow from operating activities, cash flow from investment activities, and cash flow from financing activities.
If you can earn it, you will save
"Hematopoiesis" is powerful
Operating cash flow is the company's "hematopoietic stem cells", and Wuliangye's operating cash flow from 2014 to 2023 is positive and the absolute amount is on the rise.
This is mainly because the company's main business can be earned, and the operating income will increase from 21 billion in 2014 to 83.3 billion in 2023, with a compound annual growth rate of 15%; The total net profit increased from 5.9 billion in 2014 to 30.2 billion in 2023, an increase of nearly 6 times.
So, what does Wuliangye rely on to achieve high performance?
One is that the volume and price of high-end wine have risen.
In terms of price, Wuliangye is positioned as a high-end liquor, with a strong brand advantage, and the market price of the large single product "Puwu" has risen from 700 in 2014 to more than 1,000 bottles now.
The prices of raw materials such as sorghum, rice, glutinous rice, wheat, corn and other commodities have a significant downward trend, which leads to high profits for the company's wines.
In terms of volume, the company's total sales of liquor will increase to 38,659 tons in 2023, a year-on-year increase of 17.98%. This is because Wuliangye attaches great importance to the construction of sales channels, and more than 50% of its sales expenses will be used on promotions in 2023, which has led to the continuous expansion of the dealer team, with 240 new dealers added in a year.
The other is that the business model is excellent and the bargaining power is strong.
The company is "picking up the goods first and then paying the money" for the upstream, but "collecting the goods first and then shipping" for the downstream, taking it all at both ends, firmly grasping the cash in its own hands, and transferring the risk to the upstream and downstream.
In 2023, the company's accounts receivable will only be 43 million, but the accounts payable will be 8.864 billion, which shows the company's intensity of "squeezing" the upstream and downstream.
So there is also a risk here that there is a fear of dealer "uprising", but the probability of this situation is small.
Although the scale of the entire liquor market has declined in recent years, the industry is polarized, the sub-high-end, low-end market is gradually languishing, and the supply of the high-end market is insufficient.
From this point of view, the company's performance is more sustainable.
Moreover, the net cash ratio and cash ratio of Wuliangye in the past 10 years have basically remained above 1, and its performance has been converted into real cash, which is a company that can really "save money".
Proper "bloodletting"
Helping the company grow newly
Corporate investment is the process of promoting metabolism through "bloodletting" and allowing the company to grow further. In the past 10 years, Wuliangye's net cash flow from investment activities has been negative and increasing in absolute terms, especially in 2023, the total investment will reach 3 billion, an increase of 71% year-on-year.
Specifically, the main part of the company's cash outflow from investment activities is cash paid for the construction of fixed assets, intangible assets and other long-term assets.
The first phase of the 100,000-ton ecological liquor project with an investment of 1.4 billion yuan will be officially put into operation in 2023, with an annual production capacity of 20,000 tons; The second phase will invest 4.8 billion yuan and is expected to achieve a production capacity of 42,500 tons in 2024.
The 1.6 billion yuan "China Liquor Culture Holy Land Project" will also be put into operation in 2025, which is expected to increase the total production capacity to 200,000 tons.
Even if the investment in Wuliangye's capacity expansion in 2023 is as high as 3 billion, which is a drop in the bucket for the company's operating cash flow of more than 40 billion, the newly built production capacity can further force the performance to rise in the future, which will do more benefits than disadvantages for the company!
Generous dividends
Create a virtuous cycle of cash flow
In general, the performance of start-ups is unstable and requires capital injections from investors, so the net cash flow from fundraising activities is generally positive. However, after the development of the enterprise matures, it will choose to return to shareholders through dividends and other means, and the net cash flow of financing activities will become negative.
It can be seen that the net cash flow of Wuliangye's financing activities in the past 10 years has been negative, and the absolute amount has increased year by year. This is a good thing that the company has been able to make money on its own.
It can also be seen from the cash flow statement that the cash outflow of the company's financing activities is mainly used for the distribution of dividends, profits and interest repayment, which not only safeguards the interests of shareholders but also promotes the virtuous cycle of its own cash flow.
From 2014 to 2023, the company's dividend rate has increased steadily, and has been stable at about 60% in the past two years, although there is still a gap compared with Moutai, but it can protect the interests of shareholders while preventing cash flow risks, which is a more reasonable level.
Valuation depressions
Maxima is galloping
Wuliangye's cash flow is so strong, so is its current price reasonable?
Discounted free cash flow is a reasonable valuation method for mature enterprises such as Kweichow Moutai and Fuyao Glass.
Specifically, calculate the next five years and perpetual cash flows, and then sum the discounted cash flow values.
Here we simplify the data and calculate the current value of Wuliangye:
1. Cash flow = operating cash flow - capital expenditure
2. Growth rate in the next 5 years = 15%
3. Sustainable growth rate g=5%, discount rate r=10%
After discounting, the final valuation of Wuliangye is 1,036.513 billion, and as of October 18, 2024, the company's market value is only 555.1 billion, which is undervalued.
summary
Misfortune and blessing are relied upon, and blessing and misfortune are lurking.
The market value of Wuliangye once halved from 1,000 billion to more than 500 billion now, it sounds like the sky has fallen, but this is mainly affected by the general environment of the liquor market, and from the perspective of cash flow, there is no problem with the company's own operation.
As of the first half of 2024, the company has a total of 1,305 institutional holdings, and the future is full of highlights!
The above analysis does not constitute specific trading advice, the stock market is risky, and investment should be cautious.
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Source: Flying Whale Investment Research