Jiangsu King’s Luck Brewery(603369.SS): Strong demand for premium baijiu


Jiangsu King’s Luck Brewery. Strong demand for top rate baijiu

  • King’s success pronounced that its 1Q21 income grew through 35% yoy to Rmb2.4bn and that internet earnings rose by way of 39% yoy to Rmb805m, in line with our expectations, driven by using robust demand for top rate baijiu income in the Jiangsu market.
  • We now assume the Company’s income to develop by using 24% yoy and internet income to rise by way of 22% yoy in FY21F, pushed via endured consumption upgrading in Jiangsu province and new market development.
  • Reiterate Add with an unchanged DCF-based TP of Rmb62.

Improvement in income contribution of top-class merchandise in 1Q21

In 1Q21, income of the Company’s top class baijiu merchandise with an ex-factory charge above Rmb300 per bottle grew with the aid of 57% yoy to Rmb1.5bn, Sales of merchandise with an ex-factory fee of Rmb100–300 per bottle grew modestly at 9% yoy, and their income contribution declined from 29% in FY20 to 26% in 1Q21.

The Company’s product shape improves accelerated, pushed by using robust demand from the baijiu consumption improve in its home

market, Jiangsu province. Sales in Jiangsu province rose through 33% yoy in 1Q21 to Rmb2.2bn, accounting for 92% of complete sales. Sales in backyard markets have gradually. The complete wide variety of distributors remained steady at 932 as at end-1Q21, 398 of whom have been in Jiangsu province and in different markets.

Marketing funding to make bigger to enhance penetration

The average GPM in 1Q21 retained flattish yoy at 73.3%, as its aid coverage for distributors to overcome the pandemic persisted in 1Q21. The Sample costs ratio fell with the aid of 1% pt. to 14.1%, as the pandemic in 1Q21 confined cross-provincial journey at CNY, which resulted in much less advertising funding in 1Q21. We assume advertising recreation to step by step make bigger in the following quarters for new market development.

Management stated the Company’s new market distributors blanketed one hundred forty-four cites and 479 counties in 2020 and are anticipated to cowl 230 or extra cities and 1,100 counties in 2025. So, we anticipate the Stampa fees ratio to attain 21–22% in FY21F. The NPM expanded via 0.8% pt. to 33.6% in 1Q21. Advance repayments from clients grew by way of 87% yoy in 1Q21 and 87% in contrast with that in 1Q19. We consider the Company will have desirable income increase in the low season of 2Q21F.

New merchandise organized for upcoming top season income in 3Q21F

Guoyu an K4 is the Company’s key product, with a retail fee of Rmb535 per bottle and a stable patron base in Jiangsu province. On 5 Feb, the Company introduced that it would now not be given any new orders for Guoyu an K4 to put together for the new model of Guoyu an K4, which will be launched in May.

The contemporary channel stock for Guoyu an K4 is much less than one month, as the first-layer wholesaler rate has been secure at Rmb420 per bottle. With the modern tight channel inventory, we assume this product to have robust income increase in the top season of 3Q21F, specifically for banquets and different crew gatherings.

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