China Baijiu Sector: Premium Baijiu Continues To Enjoy Steady Growth on Resilient Demand

Wide-moat-rated Moutai’s preliminary first-quarter revenue and profits were slightly ahead of our expectations, with revenue and net profit rising 18% and 19% year over year, compared with our forecast of 16% and 17% revenue and bottom-line growth, respectively. We think the decent rise suggests that premium baijiu continues to enjoy resilient demand, helping to ease concerns over its growth outlook. We expect the leading premium baijiu producers, including Wuliangye Yibin and Jiangsu Yanghe, to continue posting 13%-16% year-over-year top-line growth, and 15%-20% rise in recurring net profit in the first quarter, as product mix and a shift toward direct-to-customer sales channels will likely lift operating margins. We maintain our fair value estimates for Moutai at CNY 1,680 per share, Wuliangye at CNY 196, and Yanghe at CNY 177. And we think the shares are fairly valued as of market close on April 14.