Analyst Note| Jennifer Song |
On Aug. 20, the State Administration for Market Regulation hosted a panel discussion with major baijiu companies. This raised market concern as to policy risk in the baijiu sector, leading to a sector-wide sell-off in shares. We think the meeting should be a general practice of the Chinese government, aiming to keep baijiu retail prices steady ahead of the upcoming Mid-Autumn Festival and National Holiday Golden Week. In addition, the authority may also intend to cool down the sharp rising capital investments in Jiang-flavored baijiu in Renhuai city, Guizhou province, to avoid disordered access to natural resources and overcapacity issues, and sustain the sector’s long-term healthy growth. We expect little impact to major baijiu companies’ operation and earnings outlooks, and the current low inventory level and uptick in retail prices of major mid- to high-end baijiu suggest demand for premium baijiu remains robust.