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Author｜Editor of Magnesium Economics Team｜Ou Aiping

After the new coach Gao Feng took office,Jiugui Liquor(000799.SZ) still can’t stand up.

In the first half of this year, Jiugui Liquor once again handed in a semi-annual report forecasting a "double decline in revenue and profit". During the reporting period, the company expects its net profit to shrink by nearly 70%, and its revenue to decline by more than 30% year-on-year.

In response to the declining performance, Jiugui Liquor explained that this was related to the overall industry environment, product structure, sales expenses, etc.

At present, although the liquor industry has entered a downward cycle, many liquor companies are still able to maintain a slight growth. However, Jiugui Liquor, which has a background and qualifications, has fallen to the bottom in less than two years and has never recovered.

Over the past 20 years, similar situations have occurred many times, and Jiugui Liquor has also experienced ups and downs, seeming to be caught in a strange "cycle."

Can Gao Feng, the new coach who has just taken office, lead Jiugui Liquor out of its predicament?

Revenue and profit both fell and the stock price was at the bottom

Since the beginning of this round of liquor adjustment cycle, Jiugui Liquor has been at the bottom among the 20 A-share listed liquor companies in terms of both performance and stock price.

First, let's look at the performance. The performance forecast for the first half of 2024 released by Jiugui Liquor shows that the revenue in the first half of the year is expected to be around 1 billion yuan, compared with 1.541 billion yuan in the first half of last year, a year-on-year decline of 35.12%; the net profit is 110 million to 130 million yuan, a year-on-year decline of 69.19%-73.93%.

It can be seen that Jiugui Liquor is still struggling in the downward channel, continuing last year's situation of both revenue and net profit falling.

In response to the continued decline in performance, Jiugui Liquor explained in the announcement that the liquor industry as a whole is still in a period of adjustment, the industry's squeeze-type competition has further intensified, the price of liquor products is under pressure, the confidence of channel customers is still in the repair stage, and the consumption demand for mid-to-high-end products and above has yet to be restored. In addition, affected by changes in the demand side, the company's product system currently has a high proportion of mid-to-high-end and mass-priced products, resulting in a decline in the company's overall sales gross profit margin.

Jiugui Liquor's management emphasized the causal relationship between the decline in performance and the adjustment of the liquor industry and the sluggish consumer demand. However, these external factors are problems that all liquor companies have to face. Facing the same industry pressure, Jiugui Liquor's performance is obviously not as good as other liquor companies.

For example, in 2023, Jiugui Liquor's revenue and net profit fell by 30.14% and 48.85% respectively. Among the 20 listed liquor companies in 2023, Jiugui Liquor's revenue growth ranked last, and its net profit growth was only higher thanHuangtai Wine(-350.64%), ranking second from the bottom.

In the first quarter of this year, Jiugui Liquor's performance continued to rank last. The financial report shows that in the first quarter of 2024, Jiugui Liquor's revenue was 494 million yuan, a year-on-year decline of 48.8%; net profit was 73.3803 million yuan, a year-on-year decrease of 75.56%, only a quarter of the same period last year. The growth rate of revenue and net profit is still the lowest among the 20 A-share listed liquor companies.

Jiugui Liquor's stock price performance is also at the bottom among the 20 A-share listed liquor companies. According to the statistics of the Magnesium Economics Group, from January 3, 2023 to July 22, 2024, Jiugui Liquor's stock price fell by 70.27%, ranking second from the bottom. Jiugui Liquor's market value once reached 88.6 billion, but as of July 24, 2024, it was only 12.56 billion, evaporating 76 billion.

In fact, in terms of qualifications and background, Jiugui Liquor is no worse than most other liquor companies. It is backed by the central enterprise COFCO and has the artistic empowerment of the "artistic genius" Huang Yongyu. The three major brands of Jiugui Liquor, "Xiangquan", "Jiugui" and "Neican", have all been created by Huang Yongyu. Huang Yongyu not only designed the packaging for these products, but also helped Jiugui Liquor with publicity and promotion. Jiugui Liquor also has the technological innovation of Fuyuxiang. Shen Yifang, a Chinese liquor master, once said that Fuyuxiang combines the characteristics of the three major aroma types of strong, light and sauce, which is an innovation.

However, these advantages do not seem to be well utilized.

Therefore, many industry insiders believe that Jiugui Liquor’s current predicament is “30% natural disaster and 70% man-made.” Moreover, Jiugui Liquor seems to have fallen into a strange “historical cycle”.

The major shareholder has changed hands many times, and COFCO, a state-owned enterprise, is also difficult to deal with

Even more turbulent than Jiugui Liquor’s performance is its management.

Since its performance declined last year, Jiugui Liquor's management has begun to change frequently.

In February this year, Jiugui Liquor held a board election. Wang Hao, who had served for six years, was no longer the chairman of Jiugui Liquor. He was replaced by Gao Feng from COFCO. Ten days before the first half performance forecast was released, Wang Zhe, the deputy general manager in charge of Jiugui Liquor sales, also resigned for personal reasons.

In the eyes of outsiders, the departure of Wang Hao and Wang Zhe are both related to the continued sharp decline in Jiugui Liquor's performance.

During the period when COFCO controlled Jiugui Liquor, frequent changes of management were the norm.

According to statistics, since COFCO sent management to Jiugui Liquor in 2016, Jiugui Liquor has had three chairmen and three general managers, with an average tenure of about three years. Wang Zhe's position as deputy general manager has seen even more frequent changes. Since April 2020, four people have been replaced.

Frequent changes in management are bound to affect the development of Jiugui Liquor. In fact, before COFCO took over, Jiugui Liquor's performance experienced ups and downs during multiple shareholder changes.

Since its listing in 1997, Jiugui Liquor's controlling shareholders and management have undergone many changes, including the Xiangquan era from 1997 to 2002, the Chenggong era from 2003 to 2005, the Zhonghuang era from 2006 to 2014, and the COFCO era from 2015 to the present. The company's performance has also fluctuated accordingly.

In 1998, Jiugui Liquor realized a net profit of nearly 200 million yuan, second only toWuliangye(553 million yuan). After that, the liquor industry entered a period of adjustment. Xiangquan Group was too ambitious and expanded across the country while diversifying its investments. As a result, by 2002, the company fell into losses, with revenue of 400 million yuan and a net loss of 145 million yuan attributable to the parent company.

In 2003, Xiangquan Group transferred its 88 million shares to Hunan Chenggong Holding Group Co., Ltd. (hereinafter referred to as Chenggong Group). Until 2006, Chenggong Group held 29.04% of the shares and became the company's largest shareholder. The actual controller became the natural person Liu Hong.

Chenggong Group is a large group mainly engaged in high-tech industries and investment banks. Under Liu Hong's management, Jiugui Liquor's losses narrowed in 2004, but it soon fell into a more dangerous situation: 420 million yuan of Jiugui Liquor's funds were misappropriated by Chenggong Group, causing the company to suffer huge losses. From 2005 to 2006, the company's cumulative revenue was only 450 million yuan, but its non-net profit totaled -488 million yuan.

After that, Chenggong Group was fined and the control of Jiugui Liquor returned to Xiangquan Group. At that time, Jiugui Liquor almost stopped production. In 2006, Yang Bo, who had a government work background, took over Jiugui Liquor and resumed the company's production and sales while planning a reorganization.

In 2007, Zhonghuang Co., Ltd. (Zhonghuang for short) became the largest shareholder of Jiugui Liquor through auction and acquisition, holding 31% of the shares. Zhonghuang belongs to Huafu Group, which is under the State-owned Assets Supervision and Administration Commission. Under Zhonghuang's operation, Jiugui Liquor turned losses into profits in 2007 and maintained a high growth rate until 2012.

However, at the end of 2012, Jiugui Liquor was exposed to have plasticizer levels 2.6 times higher than the standard. Its performance suffered a cliff-like decline in 2013, and it fell into losses again in 2014. The name of its securities was changed to "*ST Jiugui", and it faced the risk of delisting.

At a critical moment, in November 2014, COFCO Group merged with Huafu Group, which was also a central enterprise, and Jiugui Liquor entered the COFCO era.

Under the management of COFCO, Jiugui Liquor took advantage of the last bull market in the liquor industry. From 2018 to 2022, its revenue doubled from 1.187 billion yuan to 4.05 billion yuan, and its stock price also increased more than tenfold.

However, when the bull market ended and the wind stopped, the same story happened again, and Jiugui Liquor once again fell heavily from its height.

Jiugui Liquor seems to be caught in a strange "historical cycle". Every time it changes ownership, its performance rises and then falls, and it experiences frequent changes in management during this period.

According to rough calculations by NetEase Finance, in the more than 20 years since its listing, Jiugui Liquor has experienced at least 10 chairmen, 7 general managers, and more than 100 senior executives have left, including more than 80 executives who have left since 2019.

It can be seen that the management of Jiugui Liquor is very difficult, which may be due to the complex internal power structure. According to "Blue Whale Finance", an industry insider close to Jiugui Liquor revealed that the internal management of Jiugui Liquor is composed of three factions: COFCO, the local government, and the old employees of Jiugui Liquor. The relationship is delicate and the game of interests is constant.

Today, Jiugui Liquor is experiencing its fourth decline. Whether it can break away from this "historical cycle" may depend on the new coach of Jiugui Liquor, Gao Feng.

Can "fire captain" Gao Feng turn the situation around?

From the outside world's perspective, Gao Feng is undoubtedly playing the role of "fire captain".

Public information shows that Gao Feng was born in 1970 and is now 54 years old. He has worked in China National Cereals, Oils and Foodstuffs Import and Export Group, COFCO Real Estate, COFCO Land, COFCO Trading and other companies. Before becoming the chairman of Jiugui Liquor, Gao Feng's last position was chairman and party secretary of COFCO Wine Investment Co., Ltd.

When he made his first appearance at the "Jiugui Liquor Fragrance Conference", Jiugui Liquor General Manager Zheng Yi exposed all the difficulties in front of him.

At the 2023 Jiugui Liquor Fragrance Conference, many problems facing Jiugui Liquor were listed on the big screen on site, such as "performance directly cut in half", "price inversion", "a mess of cultural and creative wines", "falling stock prices", "stock pressure speculation", "high inventory", "channelling", "what is the management doing", etc.

Even though Gao Feng is considered a "veteran" in the COFCO system, taking over a company like Jiugui Liquor is undoubtedly a huge challenge.

Among the above problems, the most difficult to solve is probably the internal personnel relations of Jiugui Liquor. With multiple forces coexisting, there will be endless games, and you can imagine how difficult it is to manage. Perhaps only a deep organizational reform can solve these "chronic diseases."

This is not a problem that can be solved in the short term. Gao Feng’s top priority may be to lead Jiugui Liquor back on track for growth as soon as possible.

After Gao Feng took office, Jiugui Liquor took the right medicine and began to correct the development strategy during Wang Hao's period.

Previously, Wang Hao had promoted the development strategy of "deep nationalization and expansionary growth", which led Jiugui Liquor to be eager for quick success and quick profit, and to overstock the products, which overdrawn the dealers. After Gao Feng took office, Jiugui Liquor turned to "deepening the provincial market and intensive growth".

During Wang Hao's period, Jiugui Liquor handed over the market in Hunan Province to large distributors for independent operation. Now Jiugui Liquor has established the Hunan Business Department and built a sales network in towns and villages in the province, in an effort to expand the market in its Hunan base.

However, even though Hunan Province is the "base camp" of Jiugui Liquor, it is not easy to expand.

According to data from the Hunan Provincial Liquor Industry Association, the size of Hunan's liquor market in 2023 will be around 28 billion yuan, two-thirds of which will be occupied by national liquor companies such as Moutai, Wuliangye, and Jiannanchun. Jiugui Liquor's market share in Hunan is only around 7%. The Hunan liquor market is highly competitive, and Jiugui Liquor does not have much advantage in its home base.

In addition, Jiugui Liquor's marketing method has also changed. In the past, Jiugui Liquor would give dealers rebates to increase inventory. Now, in order to ship goods, it has changed to a code scanning reward to stimulate bottle opening. In fact, it is transferring part of the original discounts given to dealers to end consumers.

Judging from the performance forecast for the first half of the year, Gao Feng's measures have not yet taken effect. In the first half of 2024, Jiugui Liquor's net profit shrank by nearly 70%, its stock price fell by nearly 40%, and its market value evaporated by 10 billion yuan. This is obviously not a passing report card.

As time goes by, Gao Feng's pressure may increase. According to the 21st Century Business Review, Gao Feng's probation period is one year, and it remains to be seen whether the chairman will be changed again during that time.

In other words, there is not much time left for the peak.

References:

"The King of Hunan Liquor with a Value of 13 Billion Yuan, Its Performance Slumps", 21st Century Business Review

"Gao Feng takes office as new chairman, Jiugui Liquor faces a big test", Blue Whale Finance