Continued healthy growth in 3Q22
- Moutai’s baijiu sales in 3Q22 grew by 15.6% yoy to Rmb29.5bn, and its net profit grew by 15.8% yoy to Rmb14.6bn, in line with our expectations.
- Better cash collection and orders from distributors indicate likely solid sales growth in 4Q22F. We believe company will certainly achieve its sales growth target of over 15% yoy for FY22F. We now expect sales to grow 12.6% yoy in 4Q22F.
- Reiterate Add with an unchanged DCF-based TP of Rmb2,218.
Maintained steady yoy sales growth in 3Q22
The company’s total revenue in 9M22 grew by 16.5% yoy to Rmb89.8bn, and its net profit in 9M22 grew by 19.1% yoy to Rmb44.4bn, in line with our expectations. The company’s baijiu sales continued to grow steadily by 15.6% yoy to Rmb29.5bn in 3Q22. Cash received from products sold rose by 19.6% yoy to Rmb34.9bn. Advance payments from distributors grew by 30% yoy and 22% qoq to Rmb11.8bn by the end of 3Q22. Better cash collection and orders from distributors imply likely solid sales in 4Q22F. We believe the company will certainly achieve its sales growth target of over 15% yoy for FY22F. We now expect the company’s sales to grow 12.6% yoy in 4Q22F.
Moutai liquor volume expected to improve in 4Q22F
In 3Q22, sales of Moutai brand products grew modestly by 10.9% yoy to Rmb24.4bn, accounting for 83% of total baijiu sales in 3Q22 (9M22: 86%). Sales of the Series brand grew significantly by 42% yoy to Rmb4.9bn. We believe the company increased the supply of its new series product, Moutai 1935, in 3Q22 and that customer recognition of this new product improved. As the Spring festival (21 Jan 2023) approaches, we expect demand for Moutai brand products to increase in 4Q22F. We believe that the company will increase its supply of Moutai brand products in 4Q22F and that the sales contribution
of Moutai brand products will improve qoq to c. 90% in 4Q22.
Stable sales contribution from iMoutai since its launch
Since the company’s e-commerce platform, iMoutai, was officially launched on 31 Mar 2022, sales of iMoutai have continued to maintain steady growth, achieving sales of Rmb4.0bn in 3Q22, contributing 13% of total baijiu sales in 3Q22. Therefore, the company’s direct sales ramped up quickly by 111% yoy in 3Q22 to Rmb10.9bn and the direct sales contribution improved from 36.4% in 1H22 to 37.2% in 3Q22 (9M22: 36.7%). Distributor sales fell by 9% yoy to Rmb18.4bn in 3Q22. We believe the company will continue to use the iMoutai platform to introduce and promote new products under the Series brand in the future, and then launch them in its distributor channel. Besides series products, Moutai will use the iMoutai online platform to sell more of its tailor-made Moutai brand products to improve the overall average selling price and gross margin.
Stable net profit margin in 3Q22
The company’s GPM improved by 0.6% pt to 91.4% in 3Q22, mainly due to the sales contribution improvement from its tailor-made Moutai products and direct sales channel. Accordingly, the sales tax rose by 2.4% pts to 16.7%. The distribution expenses ratio increased slightly by 0.6% pts to 3%, as the company enhanced its marketing investment in its Series brand products in the distributor channel. With tighter cost control, the G&A expenses ratio declined by 0.9% pt to 2.2%. The NPM retained yoy flattish at 49.4%.
Reiterate add with an unchanged DCF-based TP of Rmb2,218
We maintain our EPS forecasts and reiterate our Add rating, as Moutai initiated a couple of measures to accelerate distribution channel reforms and has made impressive progress. A downside risk is that the weak macro might affect super premium baijiu demand. A positive catalyst would be further improvement in the direct sales contribution. Our TP is derived from the DCF valuation methodology (WACC: 10%, terminal growth rate: 3%).
