Rising Supply and Direct-to-Customer Sales To Accelerate Moutai’s Growth in 2022

We maintain our fair value estimate of wide-moat Moutai at CNY 1,580 per share, following the company’s in-line first-quarter results, which reaffirmed our view that Moutai’s profit growth will accelerate in 2022, with increased base liquor supply a key boost. Other noteworthy data points in the report include: 1) sales from direct-to-customer, or DTC, channel, rose to 33.7%, up from 22.6% in full year 2021, a mix benefit due to higher selling prices compared to the traditional sales channel through distributors; and 2) sales of series baijiu growth of 29.7% from a year ago, compared with the 17.4% growth of core Feitian Moutai. We think the expanding product offerings, particularly the launch of high-end series product Moutai 1935 in January 2022, will help to attract more diversified customer groups and expand income streams. We think all these positives will strengthen Moutai’s competitiveness in the baijiu market and support our investment thesis of a robust long-term growth outlook for Moutai. We maintain our net profit growth CAGR assumption of 14.3% over the next five years. The shares are fairly valued presently.