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Produced by Radar Finance Hongtu | Edited by Xiao Sha | Deep Sea

Many liquor companies are having a hard time this year, and Shede Liquor, one of the "Six Golden Flowers of Sichuan Liquor", is also facing performance pressure.

On August 21, Shede Wine Industry disclosed its 2024 semi-annual report. The report shows that the company achieved operating income of 3.271 billion yuan in the first half of 2024, a year-on-year decrease of 7.28%; the net profit attributable to shareholders of listed companies was 591 million yuan, a year-on-year decrease of 35.73%.

In this regard, Shede Wine Industry explained that in the first half of 2024, the liquor industry as a whole is still in a period of adjustment. Affected by the economic environment, the business demand for sub-high-end liquor is lower than expected, banquets continue to grow but the scale is still small, and the company's traditional advantage product Pinwei Shede is in a phased destocking stage.

In addition to the decline in performance, the inventory of Shede Wine Industry has continued to rise in recent years. From 2021 to 2023 and the first half of 2024, the company's inventory was 2.794 billion, 3.583 billion, 4.424 billion and 4.858 billion yuan respectively. To this end, the company has also taken the initiative to adjust and take "stabilizing prices, controlling inventory, and strengthening sales" as the current core principles.

At the same time, in the case of unsold inventory, Shede Wine Industry had previously planned to invest 7.054 billion yuan in a production expansion project, which would increase the annual production of raw wine by about 60,000 tons after completion. However, by the end of the first half of the year, only 1.147 billion yuan had been invested and 20% of the progress had been completed. Whether the project could be completed on schedule in the remaining two years was also a major challenge.

Radar Finance noticed that after the interim report was released, the share price of Shede Wine Industry plummeted on August 22, falling 9% by the close of trading and hitting a new low of 45.04 yuan per share this year, with a total market value of only about 15.2 billion yuan.

At the end of 2020, Yuyuan Group, a member of the Fosun Group, spent 4.53 billion yuan to win 70% of the shares of Sichuan Tuopai Shede Group, thereby acquiring 20.97% of the shares of Shede Wine Industry, and Guo Guangchang became the actual controller.But now, with the share price of Shede Wine Industry continuing to fall, the market value of the shares held by Fosun Group is only about 3.2 billion yuan.

Revenue and net profit both fell in the interim report

"Selling things is not tragic, but not being able to sell them is. Whether it is selling wine or selling a business, it is not tragic as long as you can sell them." At last year's Yabuli China Entrepreneurs Forum, Fosun founder and Fosun International Chairman Guo Guangchang responded to his sale of Nangang shares in this way.

But since the beginning of this year, Guo Guangchang's Shede wine seems to be less easy to sell.

According to the financial report, in the first half of 2024, Shede Wine Company achieved operating income of 3.271 billion yuan, a year-on-year decrease of 7.28%; net profit attributable to shareholders of listed companies was 591 million yuan, a year-on-year decrease of 35.73%; non-net profit was 579 million yuan, a year-on-year decrease of 35.51%.

Looking at the second quarter alone, the company's profit decline was even more obvious, with revenue of 1.17 billion yuan, down 22.6% year-on-year, and net profit attributable to shareholders of the parent company of 40 million yuan, down 88.4% year-on-year.

Huachuang Securities' research report pointed out that the company's revenue and profit performance were lower than expected. It was judged that this was mainly due to the weakening of external demand, and the company took the initiative to adjust to digest inventory and reduce payment and delivery requirements.

From a macro perspective, in the first half of 2024, the liquor industry continued the adjustment momentum of the previous year, with a clear market polarization. Leading liquor companies are still resilient, while second-tier brands are facing challenges.

According to the "2024 China Liquor Market Mid-term Research Report" (hereinafter referred to as the "Report") released by the China Alcoholic Drinks Association, 80% of the surveyed liquor companies said that the market has cooled down, and there is competition for stock at the production and circulation ends of liquor, and there is obvious consumption diversification and strong differentiation. Competition in the breadth of the market has become a fact.

Regarding its own operating pressure, Shede Wine Industry said that the liquor industry as a whole was still in an adjustment period in the first half of the year. Affected by the economic environment, the business demand for sub-high-end liquor was lower than expected, banquets continued to grow but the scale was still small, and the company's traditional advantage product Pinwei Shede was in a phased destocking stage.

According to reports, the main products of Shede Wine Industry currently include ultra-high-end products such as Tianzihu, Shebude, and Tunzhihu; high-end collections such as Shede 10 Years, Wisdom Shede, and Taste Shede; mid-range products such as Shezhidao, Tuopai Qujiu, Tuopai Tequ, Tuopai Youqu, Taozui, etc.; and popular bottled wine such as Tuopai Special T68, etc.

At the brand level, the company has built a brand matrix with "Shede" and "Tuopai" as the two core brands, and "Tianzihu", "Tunzhihu", "Taozui" and "Yelanggu" as the nurturing brands.

Although there are many products and brands, the performance is uneven. In terms of products, the revenue of mid-to-high-end wine and ordinary wine in the first half of the year decreased by 5.61% and 25.18% year-on-year respectively; in the second quarter, the company's mid-to-high-end and ordinary wine revenues decreased by 19.3% and 47.3% year-on-year respectively.

Institutions judged that in the second quarter, the taste of major single products such as Shede declined by more than 20%; during the same period, mass-priced products such as Shezhidao, Tuopai Special T68, and Tuopai Jiaoling Special Qu maintained growth, but ordinary wines such as customized development products declined significantly.

As a manufacturer of strong-flavored liquor, Shede Liquor established Guizhou Yelang Ancient Winery Co., Ltd. (referred to as "Yelang Ancient Winery") in 2022 in a joint venture with Yelang Ancient Winery Co., Ltd. in Maotai Town, Renhuai City, Guizhou Province. Since then, Shede has also had a sauce-flavored product.

Tianyancha App shows that Shede Wine Industry, as the major shareholder, currently holds 78.95% of the shares of Yelang Ancient Winery, with absolute controlling stake.

However, the latest financial report shows that in the first half of 2024, Yelang Ancient Winery achieved revenue of 171 million yuan and a net profit of -9 million yuan, and is still in a loss-making state.

By region, in the first half of the year, Shede Wine Industry's revenue in Sichuan Province, its home base, and outside the province were 910 million yuan and 2.076 billion yuan, respectively, down 2.46% and 11.16% year-on-year; the decline was even greater in the second quarter, with revenue in the province down 18.2% year-on-year and revenue outside the province down 28.5% year-on-year.

In addition, as of the end of the second quarter, the company had 2,809 dealers, an increase of 154 from the end of 2023.

The adjustments made by Pinwei Shede led to a downward shift in the company's product structure, which, combined with factors caused by inventory reduction, resulted in the company's gross profit margin in the second quarter falling by 11 percentage points year-on-year to 60.9%.

In terms of other indicators, according to Huachuang Securities research report, in the second quarter, Shede Wine Industry's sales collection was 1.52 billion yuan, a year-on-year decrease of 14.7%, and the net cash flow from operating activities was -130 million yuan, compared with 410 million yuan in the same period last year; at the end of the second quarter, the contract liabilities were 160 million yuan, a decrease of 70 million yuan from the end of the first quarter.

Core data declined across the board, and Shede Wine Industry entered a period of adjustment. Institutions lowered the company's target price and profit forecasts. Guotai Junan lowered its target price to 68.02 yuan and lowered its profit forecast for 2024-2026. Huachuang Securities gave the company a valuation of 15 times, correspondingly lowering its target price to 54 yuan.

Inventory increases but production and capacity expansion are still ongoing

Inventory pressure is a word frequently mentioned by liquor companies.

"From the consumer side, the liquor consumption market has entered a period of transformation, the liquor industry has entered a cooling-off period, consumer demand is slightly weak, the problem of 'high inventory' is more prominent, and the dual rationality concept of 'consumption rationality + price rationality' continues to emerge on the consumer side." This is how Shuijingfang described the current situation of the liquor industry in its semi-annual report.

The above-mentioned "Report" of the Wine Association also pointed out that one of the changes in the liquor market in the first half of the year was the increase in prices and inventory. Wine companies stabilized the market price system by adjusting prices, but the upstream and downstream "sandwiched" channel dealers were under pressure from both ends, facing the dilemma of price inversion and inventory backlogs.

In the context of generally high inventory levels in the industry, Shede Wine Industry is no exception. The financial report shows that as of the end of the first half of the year, the company's inventory amount in the consolidated balance sheet was 4.858 billion yuan, an increase of 18% year-on-year.

The company's inventory includes raw materials, inventory, packaging materials, self-made semi-finished products, etc. As of the end of the period, the book value of inventory was RMB 605 million, and the book value of self-made semi-finished products was RMB 3.854 billion.

According to iFinD data from Tonghuashun, the inventory of Shede Wine Industry has been rising in recent years.From 2021 to 2023, the company's inventory amounts were RMB 2.794 billion, RMB 3.583 billion and RMB 4.424 billion, respectively.

During the roadshow on April 26, the company's management said that price policy and inventory policy are the company's red lines, and maintaining stable prices and reasonable inventory is the bottom line that the company has always adhered to. The company will adhere to the basic line of "stable prices, controlled inventory, and strong sales" and ensure that dealers' inventory levels are within a reasonable range.

At present, the inventory of Shede Wine Industry continues to increase, which has put the company's previous production expansion plan into a dilemma.

Radar Finance noted that in the 2022 liquor expansion wave, Shede Liquor announced in April that it planned to invest in a production expansion project, with an estimated total investment of 7.054 billion yuan, a planned land area of ​​about 1,774 acres, and an estimated construction period of 5 years. After completion, the company expects to increase annual production of raw liquor by about 60,000 tons, increase raw liquor storage by about 342,500 tons, and increase annual koji production capacity by about 50,000 tons.

As of the end of the first half of this year, more than two years have passed. The semi-annual report shows that the project's progress is 20%, the cumulative investment accounts for 16.27% of the budget, the actual cumulative investment amount is 1.147 billion yuan, and the investment amount this year is 632 million yuan.

Unlike two years ago, the liquor market is now sluggish, which puts Shede Liquor Industry in an awkward position to expand production. From the perspective of construction period, the project is nearly halfway through, but 80% of the project progress has not been completed. From the perspective of capital investment, it will take more than two years to invest nearly 6 billion yuan before the project is put into production, which will test the company's funds.

The financial report shows that by the end of the first half of the year, the company's cash on hand was 2.1 billion yuan, a decrease of 320 million yuan from the end of last year. Moreover, the company currently has a technical transformation project with a budget investment of 1.891 billion yuan, with the project progressing by 50% and the cumulative investment accounting for 38.82% of the budget.

In this regard, some shareholders complained that "they can't even sell all the inventory, but they are still expanding production!" The company should reduce costs and increase profits. Another investor suggested, "Hurry up and rebuild the pig farm. Young people don't drink liquor. Who will they sell it to if they expand production?"

The market value of Fosun Group’s holdings has shrunk significantly

Among the many wine companies listed on the A-share market, Shede Wine Industry has a distinctive label, which is that it is backed by the "Fosun Group".

In March this year, Shede Wine Industry disclosed that due to business development needs, the company has daily related transactions such as sales of goods, purchases of goods and acceptance of services with its actual controller Guo Guangchang and the companies controlled by him. It is estimated that the total amount of daily related transactions between the company and Fosun and its subsidiaries in 2024 will not exceed 432 million yuan.

Guo Guangchang invested in Shede Wine Industry at the end of 2020. At that time, Shede Wine Industry was "capped" by the Shanghai Stock Exchange on September 22 of the same year due to "non-operational occupation of funds by the controlling shareholder and its affiliates", and the stock abbreviation was changed to "ST Shede".

Since then, the company has been in trouble. The company's former chairman Liu Li and president Li Qiang were investigated by the public security organs for criminal offenses, and Shede Wine Industry itself was also investigated by the China Securities Regulatory Commission. At the end of the year, 70% of the shares of Shede Group held by Tianyang Holdings, the company's former indirect controlling shareholder, were publicly auctioned.

On December 31, 2020, after 27 rounds of bidding, Yuyuan Group, a listed company under Fosun, finally won 70% of the equity of Shede Group at a price of 4.53 billion yuan. Guo Guangchang, chairman of Fosun Group, became the new actual controller of Shede Wine Industry.

As Shede Wine Industry enters the "Fosun era", the market expects the company to benefit from the empowerment of the Fosun ecosystem. With this expectation and the blessing of performance, the company's stock price continued to soar, reaching a peak of more than 250 yuan per share in July 2021. This investment also once made Guo Guangchang a big winner with a floating profit of more than 10 billion yuan.

But the situation is different now. As of August 22, the total market value of Shede Wine Industry was only about 15.2 billion yuan, and the market value of Fosun Group's holdings has shrunk significantly compared to its peak.

In order to stabilize the stock price and boost confidence, in February this year, Shede Wine Industry launched a major repurchase strategy. The company will use its own funds to repurchase 100 million to 200 million yuan of the company's shares within 6 months, and the repurchase price will not exceed 131.00 yuan per share (inclusive).

The announcement shows that as of August 2, the company has actually repurchased 1.8543 million shares, accounting for 0.56% of the company's total share capital. The highest repurchase price was 83.00 yuan/share, the lowest price was 52.49 yuan/share, the average repurchase price was 72.21 yuan/share, and the total amount of funds used was 134 million yuan (excluding transaction fees).