China Baijiu Earnings: Resilient Demand Supports Our Preference for Premium Baijiu Brands

Despite sluggish consumer confidence in China, wide-moat firms Luzhou Laojiao, Wuliangye, and Kweichow Moutai all posted decent 2023 results, with net profit rising 23%, 13%, and 19% year over year, respectively. The results were largely within our expectations, as premium baijiu continued to enjoy resilient demand, underpinned by its unique cultural status, strong brand heritage, and supreme product quality. We continue to believe the China baijiu sector’s premiumization trend remains a tailwind to leading baijiu distillers, boding well for long-term profit outlook of premium baijiu. We maintain our fair value estimates of Laojiao at CNY 259 per share, Wuliangye at CNY 196, and Moutai at CNY 1,780, after minor tweaks to our earnings forecasts. Luzhou Laojiao and Wuliangye are our preferred names in the sector currently, offering the best risk/reward in our view, while the shares of Moutai are fairly valued.