Yantai Changyu Pioneer Wine (B):Mid- to high-end product posted strong growth

2012 年 9 月 26 日4200

What surprised us。

Changyu Wine reported 1H10 results with net profit +29% yoy to Rmb586mn, implying 2Q10 net profit of Rmb207 mn (+32% yoy). Revenue grew 26%yoy to Rmb2,482 mn, implying 2Q10 revenue of Rmb897 mn (+26% yoy). Afew takeaways from the interim results: 1) According to the company, midtohigh-end products (i.e., Cabernet Wine and Chateau Wine) posted robustsales growth, driving overall sales growth in 1H10. 2) Ordinary dry wineseries posted only moderate sales growth due to higher ASP, which offsetslightly lower sales volume. Management attributed the lower sales volumeof ordinary dry wine series to intensifying competition, as Changyu does nothave a strong competitive advantage over market position and productpricing in the ordinary dry wine series. 3) Gross margin improved 1.5ppt to66.1% in 1H10 on continued higher sales growth from mid- to high-endproducts. Selling expenses grew 30% yoy in 1H10, but G&A costs increasedonly 4% yoy in 1H10, helping operating margin improve by 1.4ppt yoy to31% in the period.

What to do with the stock。

Changyu surprised us on their mid- to high-end product performance. Assuch, we raise our 2010E-12E EPS estimates by 3%-9% to reflect thestronger-than-expected growth; our Director’s Cut-based 12-month targetprice increases to Rmb74.1 (from Rmb70.0) for Changyu A shares and toHK$78.8 (from HK$74.1) for Changyu B shares. Maintain Neutral on bothstocks. Key risks: Intensifying competition, better-than-expected growth.

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