[买入评级]FEN WINE(600809)：FIRST-CLASS BRAND AND STRONG PRODUCTS CONTINUE DRIVING RAPID GROWTH
We recently visited Fen Wine’s distributors and discovered that bothconsumer demand and growth were strong in 3Q17. Fen Wine isgaining increased recognition across China for its products and brand.
The firm has suspended supply of Bofen, and distributors expect it todo so for Qinghua Fenjiu and Laobaifen. The move aims at boostingproduct prices. Distributors are now selling products at a loss, butsales may turn profitable within 2017. The profit for distributorsshould lay the foundation for sales ramp-up in 2018.
Most distributors had completed their annual sales plan atend-September; 3Q17 revenue growth likely to reach around40%.
Fen Wine has removed rebates for distributors; should makedistributor management simpler, more efficient.
Fen Wine has several brands at different prices to target varioussegments in the high-end market.
Growth outside Shanxi province likely to accelerate in 2018.
Incentive for the sales network likely is to align the interests ofthe company and distributors. Fen Wine is gaining risingrecognition for its brand and products, thanks to its strong salesnetwork.
Valuation and recommendation
We raise our 2017–2018e revenue forecast 1.1% and 5.6% toRmb6.08bn and Rmb8.32bn, and increase our forecast net profit5.6% and 12.1% to Rmb1.08bn and Rmb1.64bn. We raise our TP35% to Rmb80 （34% driven by our revised earnings forecast; the restdriven by higher valuation multiples and valuation rollover）。 MaintainBUY.
If sales remain unprofitable for distributors, Fen Wine’s rapid growthis unlikely to continue.
□ .T.i.n.g.z.h.i. .X.I.N.G./.W.e.n.k.a.i. .C.H.E.N .中.国.国.际.金.融.股.份.有.限.公.司