KWEICHOW MOUTAI(600519)：PROXY OF CHINA’S CONSUMPTION-LED RECOVERY; BUYING INTO ANY WEAKNESS FOR THE NEXT RECOVERY WAVE
As the proxy of China consumption, we think Moutai is undoubtedly well-positioned to benefit from the current consumption-driven recovery. This will not only be underpinned by reopening of restaurants and resumption of social events, but also company specific catalysts. These include 1) platform extension through i-Moutai (with the launch of 100ml “Flying Fairy” a.k.a “Feitian” SKU) registering RMB15bn 2022 revenue (~16% of total) with 30mn active users, and 2) a more diversified sales mix from Series baijiu with core products such as Moutai 1935, Moutai Prince Classics (茅台王子酒酱香经典), Moutai Prince Gold (茅台金王子) ,etc. Meanwhile, we are wary of the capacity bottleneck of both Moutai/ Series baijiu, which has been a known drag to growth. That said, without a legit substitute, we view this an ongoing opportunity for Moutai to monetize this excess demand through gradual price hike, until the announced capacity expansion (Moutai/ Series baijiu to 71k/ 56k ton) completes. Compounding with our reopening thesis, this happening expansion improvises a multi-year growth story (in both price and volume) in which we project 16%/ 17% 3-year revenue/ net profits CARG between 2022-25E, respectively, with a steadily improving GPM. We are buy-rated with a refreshed TP at RMB2,440 upon coverage transfer. We think shares could take a breather after the bull-run but we would recommend buying into any weakness for the next recovery wave in which growth is likely to re-accelerate from 2Q onwards.
Major earnings assumptions. 4Q22 revenue/ net profits stood at RMB37/18bn. This adds up 2022 revenue/ net profits to RMB127.2/62.6bn, respectively. Referring to the announcement, we project 2023E revenue to grow at 17.7%, thanks to 16.6% growth in Moutai baijiu and 27.7% in Series baijiu. We further assume 8% YoY volume growth to 41k tons for the former, and 14% YoY growth to 38k tons for the latter.
Channel check on Lunar New Year demand dynamics. Moutai recorded MSD to HSD sales growth, with strong momentum seen in Series SKUs. ASP for sealed “Flying Fairy/ Feitian” was ~RMB2,970 per case, while that for unsealed was RMB2,780, about RMB100 higher than those by end-22.
Valuation. With minor earnings change, our TP of RMB2,440 (from RMB2,447) is based on 41.0x end-23E P/E (from 53.7x mid-22), which represents long-term average since 2019 (since 2017). Our methodology reflects our relative optimism (vis-a-vis other F&B diversified of which target multiples are based on -1sd below long term average) that Moutai is one of the core beneficiaries standing at the forefront of China’s reopening with high certainty in earnings support.
