Premium Baijiu Likely To Show Steady Growth in Q3 on Resilient Demand

Chinese baijiu companies will report third-quarter results in late October, and we expect the leading premium baijiu producers, including Kweichow Moutai, Wuliangye Yibin, and Jiangsu Yanghe, to continue posting 10%-15% year-over-year top-line growth, and 10%-20% rise in recurring net profit in the quarter, as product mix upgrade and a shift toward direct-to-customer sales channels will likely lift operating margins. Despite disruptions from the sporadic lockdown measures in China, we think a slightly improved consumption sentiment, and demand for socializing, along with premium baijiu’s irreplaceable position in the Chinese drinking culture, will support steady sales growth of premium baijiu. Our recent channel checks show demand for premium baijiu is resilient, wholesale prices are stable, and inventory levels remain healthy. We believe the earnings of the three premium baijiu names are well on track to meet our full-year expectations, and we maintain fair value estimates of Moutai at CNY 1,580 per share, Wuliangye at CNY 188, and Yanghe at CNY 170.