What's new
Bairun Investment Holding issued on December 3 a draft of its 2021 equity incentives, proposing to grant 3mn restricted shares (0.4% of total share capital) to 227 employees.
Comments
Equity incentives conducive to long-term revenue growth. The equity incentive plan uses 2021 revenue as the base to assess revenue growth over 2022 to 2024. The target implies a revenue CAGR of 22.6% from 2022 to 2024, with 2022, 2023, and to 2024 revenue growing 25%, 23%, and 20% YoY. We expect the plan to align the interests of the firm and core employees, and boost long-term revenue growth. The details are 1. The firm initially grants 2.4mn shares, with 600,000 shares reserved. 2. The restricted shares are 1.02mn from share buyback accounts and 1.98mn a private placement. 3. For the first grant, the incentive targets include 227 core management staff, core technical, and key business staff. 4. The initial grant of restricted shares should result in total expenses of Rmb45.84mn over 2022 to 2024, with a provision of Rmb28.54mn, Rmb12.10mn, and Rmb5.2mn in each year.
Upbeat on pre-mixed alcohol, low-alcohol wines; rivals’ new products to increase competition, but positive on competition and cooperation in pre-mixed alcohol industry. The firm released its 5% ABV Qingshuang line in July with a selling price of Rmb5.9, a lower price, and slightly higher ABV vs the 3%ABV Weixun series. The fizzy Qingshuang series has mainly penetrated the lower-tier market as suitable for drinking alone or as a table wine. We think that end-market sales of Qingshuang series remain sound. We expect 2021 revenue from the Qingshuang series to take up 5% of the firm’s total revenue. Bairun released new plum wines and delved into other low-alcohol categories in September. Coca Cola entered the premade wine segment with the launch of its low-alcohol lemon sparkling wine product. We believe that competition will accelerate in the near term. However, over the long term, distributing pre-mixed wine and low-alcohol wine should cultivate new consumers and bring about cooperation and competition.
Valuation and recommendation
We keep our revenue and earnings forecasts largely unchanged. We introduce our 2023 revenue and attributable net profit forecasts at Rmb4.95bn and Rmb1.44bn. The stock is trading at 54.4x 2021e, 41.9x 2022e and 29.8x 2023e P/E. We maintain an OUTPERFORM rating and TP of Rmb75, offering 30.9% upside.
Risks
Intensifying competition; lower-than-expected revenue growth.