China Baijiu Earnings: Laojiao Continues to Shine, Swellfun Is Recovering

Despite current sluggish consumption in China, wide-moat Luzhou Laojiao and narrow-moat Sichuan Swellfun both posted decent third-quarter results, with net profit rising 29.4% and 19.6% year on year, respectively. The results were largely within our expectations, as premium baijiu continued to enjoy resilient demand, while expansion nationally has further boosted sales growth. We expect the solid growth momentum for both companies to continue in the coming quarters, boding well for a strong start in 2024. We maintain our fair value estimates of Laojiao at CNY 259 per share and Swellfun at CNY 71, and at the current levels, we think both shares of Laojiao and Swellfun are slightly undervalued.