Stronger volume growth likely in FY22F

■ Moutai announced its key headline numbers for FY21. Total revenue grew by 11.2% yoy to Rmb109bn in FY21, and net profit rose by 11.3% yoy to Rmb52bn, in line with our expectations. The detailed results will be released on 31 Mar 2022.
■ The Company has gradually adjusted its distribution channels and product structure since the new chairman came on board in Sep 2021.
■ With new production capacity gradually coming on stream, we expect the Company’s sales volume for the Moutai brand to grow by 10% yoy in FY22F, sales to grow 16.3% yoy in FY22F, and net profit to increase by 19.8% yoy.
■ Reiterate Add with a higher DCF-based TP of Rmb2,355.

Strong sales growth rebound in 4Q21

In FY21, the Company’s baijiu sales grew by 11.5% yoy to Rmb105.8bn. Sales of the super-premium Moutai brand grew by 9.9% yoy to Rmb93.2bn, contributing 88% of total baijiu revenue. Sales of the Series brands increased strongly by 26.1% yoy to Rmb12.6bn. We estimate that overall sales volume of the Moutai brand grew by 4–5% yoy to c.36,000 tons in FY21. In 4Q21, the Company’s baijiu sales growth improved qoq and 12.5% yoy (9.9% yoy in 3Q21) to Rmb31.2bn, due mainly to the gradual cancellation of the open box sales policy for distributors and increasing volume supply in the market. Sales growth of
the Moutai brand improved to 14.3% yoy in 4Q21 (5.5% yoy in 3Q21). Since the Company controlled shipments of Series brand products to ensure a healthy channel inventory level for the upcoming peak season in 1Q22F, sales growth of the Series brands slowed down 2% yoy in 4Q21 (48% yoy in 3Q21).

New capacity to support future growth

Moutai announced basic liquor production of 56,500 tons for the Moutai brand, up 12.5% yoy in FY21, much better than the 0.6% yoy growth rate in FY20, indicating that the new production capacity for the 13th Five-Year Plan (ending in FY20) started to make a contribution. We believe the Company is likely to increase its sales volume growth of the Moutai brand in FY22F, thus easing the current market shortage of its star product, 53° Moutai. We expect the sales volume of Moutai brand to grow by 10% yoy to c.40,000 tons in FY22F. The Company also launched more high-end tailor-made Moutai products, targeting the super-premium baijiu market: e.g. the newly launched Moutai Caiyou Zhenpin (彩釉珍品) and Moutai Chennian 15 Years (陈年 15 年) with a retail price of Rmb6,150 and Rm7,300 per bottle, respectively. The Company also plans to launch a new product, Moutai 1935, with a retail price of Rmb1,000 per bottle, which will become a second growth driver for its Series brands.

Good progress with new chairman on board

Since the new chairman came on board in Sep 2021, the Company has initiated channel reforms. It gradually cancelled the open box sales policy, launched a large package size (12 bottles a pack) to overcome the market shortage for individual consumers, and introduced new products to further promote product mix upgrades. We expect the Company to implement more channel reforms and further improve the direct sales contribution to boost the blended ASP in FY22F.

Reiterate Add with a higher DCF-based TP of Rmb2,355

We raised our EPS forecasts for FY22F–23F by 2.8% and 4.2%, respectively, since the newly added production capacity will boost sales volume growth and ease the current market supply shortage of Moutai brand products. We also expect the new chairman to initiate channel reforms, which will bear fruit in FY22F. Downside risks include potential consumption tax changes, which might affect the Company’s margins.