Yanghe’s First-Half Results Solid, Second-Half Growth Outlook Is Promising

Wide-moat Jiangsu Yanghe’s solid first-half results were largely in line with our expectations, which revealed accelerating profit growth following a two-year consolidation of sales and distribution channels. In addition, advance payment from distributors also increased to CNY 7.9 billion as of end-June, up CNY 2.4 billion from the same period a year ago, suggesting demand remains robust and distributors are gaining confidence in Yanghe. We maintain both our fair value estimate of CNY 170 per share and our earnings forecasts—we expect decent growth of Dream M6+ in the second half, along with double-digit sales growth of Sky Blue and Ocean Blue to drive a robust 26% year-over-year growth in the company’s recurring net profit, to CNY 9.4 billion in 2022. We think the shares are fairly valued as of market close on Aug. 26. At the current price levels, Yanghe remains our preferred baijiu name, amid stronger growth momentum in the second half.