Wuliangye Earnings: Steady Growth Continues With Solid Demand Outlook

We maintain our fair value estimate of CNY 196 per share for wide-moat Wuliangye, following its in-line 2022 and first-quarter 2023 earnings. The results revealed steady double-digit sales growth for Wuliangye, despite COVID-19 disruptions and sales pressure on the baijiu sector that led to a 19% year-over-year cut in production volume in the first quarter. First-quarter operating cash flow is also a highlight, with cash received from product sales rising 108% year over year to CNY 28.6 billion and advanced payment increasing 53% to CNY 5.5 billion, outpacing revenue growth for the quarter. Our recent channel check indicates Wuliangye has completed more than 60% of its full-year sales target as of end-April, and inventory remained at a healthy level of 1-1.5 months. We think all these suggest solid demand for Wuliangye’s products, and distributors remain confident in the demand outlook.