Good baijiu sales growth expected in 1Q24F
- For the seven baijiu companies under our coverage, average 3Q23 sales and net profit growth was 19% and 25% yoy, respectively, driven by rising banquet demand.
- Average advance payment from distributors grew 7% yoy and 19% qoq in 3Q23; this might indicate distributors’ confidence in 4Q23F and 1Q24F sales, in our view.
- Moutai raised selling price by 20% for Feitian Moutai from 1 Nov. We believe other players may not raise prices in the near term, but focus on volume growth instead.
- We forecast average sales/net profit growth of 16%/5% yoy in 4Q23F (19%/22% yoy in FY23F) and 18%/19% yoy in FY24F.
- Our top picks for the baijiu sector are Moutai, Luzhou Laojiao and Gujing.
Most baijiu companies’ 3Q23 sales growth in line
Baijiu consumption continued to grow in 3Q23, driven by banquet use at personal events, and gradual recovery in demand for business entertainment, in our view. Regional baijiu companies with strong customer awareness in their respective home markets continued to delivery stronger yoy sales growth in 3Q23 – Gujing 23% and King’s Luck 28%. Superpremium baijiu companies delivered steady 3Q23 yoy growth, with Moutai seeing 14% growth and Wuliangye 17%, while Laojiao which actively adjusted its market strategy to cope with dynamic baijiu market demand, saw 25% growth. Meanwhile, Fen Wine’s yoy sales growth slowed down to 14% in 3Q23 (vs. 24% in 1H23) as it restricted the market supply of its Qinghua brand products to stablise prices. Yanghe’s sales only grew 11% yoy in 3Q23, below our expectation, owing to fierce competition in its home market.
Good advance payment from distributors
Our channel checks at end Oct found that other than Moutai, the first-layer wholesale prices of the baijiu companies under our coverage have declined to slightly vs. prices as at endSep, due to 4Q being a low sales season. As there are still three months to Chinese New Year (CNY) in Feb 2024, we believe baijiu companies will raise their marketing expenses e.g. offering direct cash reward to end-consumers to improve the open rate of their bottles and further reduce channel inventory to prepare for a good CNY-related sales. Besides, the average advance payment from distributors rose 7% yoy and 19% qoq in 3Q23; this might indicate distributors’ confidence for 4Q23F and 1Q24F sales, in our view. For the seven baijiu companies under our coverage, we forecast average sales and net profit to grow by 16% and 5% yoy in 4Q23F, and by 18% and 19% yoy in FY24F.
Volume growth will drive 2024F sales growth for baijiu companies
Moutai increased its ex-factory price of Feitian Moutai 53° by 20% from Rmb969 per bottle to Rmb1,169 per bottle from 1 Nov 2023. Two weeks later, Moutai’s first-layer wholesale price for Feitian Moutai 53° has risen from Rmb2,650 per bottle to Rmb2,710 per bottle. The wholesale channel accounted for 55% of Moutai’s total sales in 9M23. We do not expect this price increase will have a large impact on Moutai’s first layer wholesale price and believe the first-layer wholesale price for Feitian Moutai 53° will stabilise at Rmb2,600- 2,700 per bottle in FY24F, as we expect Moutai will increase the volume it supplies to the wholesale channel in FY24F. We expect Moutai’s sales and net profit to grow by 16% and 17% yoy, respectively, in FY24F. As for the other baijiu companies, we project that given the current slow recovery of business entertainment demand, they will not hike prices significantly in 2024F, but instead pay more attention on driving volume growth.
Our top picks are Moutai, Laojiao and Gujing
We maintain our Overweight rating for the baijiu sector due to good revenue growth driven by demand from individuals and gradual recovery in business entertainment demand. Our top sector picks are Moutai and Laojiao among premium players, and Gujing among regional players, as we expect them to deliver good sales results in FY24F, owing to their dynamic market strategy. The Shenwan Liquor Index trades at 26x 12M forward P/E, 1 s.d. below its average of 35.6x since 2019; this makes the sector attractive, in our view.