报告名称：Luzhou Laojiao(000568)Suffering from poor brand positioning cut 16e earnings by
报告类型：点评报告
报告日期：2016-01-05
研究机构：中金公司
股票名称：泸州老窖
股票代码：000568
页数：4
简介：Action
We cut our 2016 earnings forecast by 12.7% and downgrade the stock to HOLD. Luzhou Laojiao preannounced its 2015earnings attributable to shareholders of Rmb1.337~1.495bn, lower than our expectations of Rmb1.56bn, due to supplycontrol, price hikes and heavy investment in distribution channels which could continue in 2016.
Reasoning
The company’s products National Treasure 1573, Jiaoling and Tequ have no sharp competitive edges after their priceswere raised.
In 2016, competition in the high-end liquor market will become more intense. We expect Wuliangye to lower prices in abid to increase sales as Kweichow Moutai continues to expand sales to gain a larger share of the high-end market. Inthis context, National Treasure priced at Rmb600/bottle should be uncompetitive. On the side of Jiaoling, the company’sfocus on 60-year product priced at Rmb250/bottle seems impractical due to the lack of branding power. As for Tequ, itsdistributors could only manage to reap meager profits if prices are raised to Rmb180/bottle which however is expensiverelative to the mainstream market prices. Its sales volume is unlikely to rise notably amid current conditions.
The company will continue to increase expenses in 2016. In particular, it will further expand its sales team and increaseterminal expenses, causing its expense ratios to continue rising.
At present, a growing number of liquor producers opt to lower prices amid more intense competition. The company’sprice hike strategy is inconsistent with current market conditions and will result in more subsidies along with the risingrevenue, although it may addresse the problem of its marketing funds shortage.
Earnings forecast and valuation
Lower 2015/16e revenue by 1.2%/4.1% to Rmb6.58bn/7.44bn, and cut earnings by 8.2%/12.7% toRmb1.44bn/1.72bn. Excluding investment gains, we expect 2016 earnings to be Rmb1.49bn. Wind marketconsensus for its 2016 revenue/earnings stands at Rmb7.78bn/1.91bn, which seems highly unachievable in our view.
We set our 2016 target P/E at 24x and cut our TP by 8% to Rmb29.3. We downgrade the stock to HOLD. The stockhas already gained 17% since our recommendation in October 2015 and currently has reasonable valuation.
Risks
Steep increases in 2016 expense ratios in case of further heavy investment in distribution channels.

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