Kweichow Moutai: A Long-Term Winner Amid Premiumization

Raising Moutai's FVE to CNY 400 as Strong Demand for Flying Moutai Persists; Shares Fairly Valued

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Equity Bottom-Up

<p>Wide-moat <a href="https://www.smartkarma.com/entities/1553" target="_blank" data-smartkarma-citation="entities:1553:1">Kweichow Moutai Co Ltd A (600519 CH)</a>'s third-quarter results largely missed our expectations, with revenue and net profit growing only 3.2% and 2.7% year on year, respectively. Although the declining advance payments from distributors have revealed weakened demand, the underperformance still surprised us. We think this was mainly owing to the high base of 116% revenue growth in the year-ago period (Moutai increased its shipments last year to stabilize the price for the strong demand) and worse-than-expected volume demand for the Mid-Autumn Festival and National Day holidays. Kweichow Moutai’s third-quarter profit growth was the lowest among the premium baijiu makers, compared to <a href="https://www.smartkarma.com/entities/19968" target="_blank" data-smartkarma-citation="entities:19968:1">Wuliangye Yibin Co Ltd A (000858 CH)</a>'s 19.6% and <a href="https://www.smartkarma.com/entities/1275" target="_blank" data-smartkarma-citation="entities:1275:1">Jiangsu Yanghe Brewery A (002304 CH)</a>'s 21.5% profit growth during the same period.</p>

Wide-moat Kweichow Moutai Co Ltd A (600519 CH)'s third-quarter results largely missed our expectations, with revenue and net profit growing only 3.2% and 2.7% year on year, respectively. Although the declining advance payments from distributors have revealed weakened demand, the underperformance still surprised us. We think this was mainly owing to the high base of 116% revenue growth in the year-ago period (Moutai increased its shipments last year to stabilize the price for the strong demand) and worse-than-expected volume demand for the Mid-Autumn Festival and National Day holidays. Kweichow Moutai’s third-quarter profit growth was the lowest among the premium baijiu makers, compared to Wuliangye Yibin Co Ltd A (000858 CH)'s 19.6% and Jiangsu Yanghe Brewery A (002304 CH)'s 21.5% profit growth during the same period.

Moutai's 3Q Results Largely Miss; Trimming Our FVE to CNY670; Shares Are Undervalued