Wuliangye's Growth Slows in Second Half of 2021; Uptick in Wholesale Prices Key to Watch

Wide-moat Wuliangye’s full-year net profit of CNY 23.4 billion was in line with our expectations, which implies slower second-half growth, owing to channel destocking and weaker demand due to COVID-19 shutdowns. We think price hikes of both ex-factory and retail prices of the flagship 52-degree Wuliangye are a key catalyst for the group in 2022, while rising competition in premium baijiu at the price levels of CNY 1,000-CNY 1,500 per bottle should mean that Wuliangye will need to maintain disciplined volume supply to strengthen its pricing power. We tweaked our 2022 net profit forecast to CNY 26.8 billion, a 2% cut from our previous forecast, to reflect slightly lower sales volume for the year, but are maintaining our CNY 188 fair value estimate, underpinned by the assumption of a steady net profit compound annual growth rate of 14.2% during 2021-26. We think the shares are fairly valued presently.