Kweichow Moutai: Ex-Factory Price Hike Lifts Our Valuation by 3% to CNY 1,780

Wide-moat Moutai raised its ex-factory price by 20% for the flagship 53-degree Moutai Liquor from Nov. 1. This is the first price hike since 2018, when the firm lifted its ex-factory price to CNY 969 per 500 milliliter bottle from CNY 818. The timing came in earlier than our expected mid-2024 and the rate is higher than our assumption of 10%. This is encouraging, given the current sluggish consumption in China, and which we think reaffirms Moutai’s strong competitiveness and leading position in the baijiu market. Given that the hike will not affect direct-to-customer channels, which make up 44% of the firm’s total baijiu sales, we estimate this will increase Moutai’s average selling price by 4%-5%. We lift our five-year net profit CAGR to 15.1% between 2022 and 2017, up from 14.8% in our earlier assumptions, and we raise our fair value estimate to CNY 1,780 per share from CNY 1,730, accordingly. We think the shares are fairly valued as of the Oct. 31 market close.