Moutai: scraped through 2024，but how to restore the shattered myth?

$Moutai(600519.SH) Kweichow Moutai: Barely Passing, But How to Restore the Broken Myth?

On the evening of April 2nd, Beijing time, Kweichow Moutai (600519.SH) released its Q4 and full-year performance for 2024, which was slightly better than the guidance data in the production and operation announcement released in January this year. The key points are as follows:

1. Performance Slightly Exceeds Expectations, Full-Year Target Successfully Achieved: In Q4 2024, Moutai achieved a revenue of 51 billion yuan, a year-on-year increase of 12.8%, slightly exceeding market consensus expectations (market expectation was 50.5 billion yuan). The growth rate slowed slightly compared to previous quarters due to last year's high base in the fourth quarter, which was within expectations. For the full year, the company's revenue grew by 15.7% year-on-year, successfully achieving the 15% target set at the beginning of 2024, once again demonstrating the certainty of Moutai's performance (over the past 10 years, except for 2013 when the national level restricted "three public consumptions," the company has exceeded the targets set at the beginning of the year).

In terms of profit, Moutai achieved a net profit attributable to shareholders of 25.4 billion yuan in Q4 2024, a year-on-year increase of 16.3%, which is faster than the revenue growth rate. Dolphin Research speculates that this is mainly due to the company's increased supply of Moutai liquor (non-standard + aged liquor) in the fourth quarter.

2. Moutai Liquor: Increase in Both Volume and Price. In Q4 2024, Moutai liquor achieved a revenue of 44.8 billion yuan, a year-on-year increase of 13.9%. For the full year, Moutai liquor achieved a sales volume of 46,000 tons in 2024, a year-on-year increase of 10.2%. If we estimate the sales volume based on the production of Moutai liquor five years ago (the actual production of Moutai liquor in 2019 only increased by 0.02 tons), the increase in base liquor available for sale in 2024 is actually not much, while the actual sales volume exceeded expectations. Dolphin Research speculates that this is mainly due to Moutai increasing the supply of some aged liquor.

The price per ton increased by 4.6% year-on-year, mainly due to the increase in Moutai's ex-factory price starting from November 2023 (from 969 to 1169).

3. Series Liquor: Controlling Supply to Support Prices, Restructuring Channels, and Slowing Down Again. In Q4 2024, series liquor achieved a revenue of 5.29 billion yuan, a year-on-year increase of 5.2%, which is a slowdown compared to the 13% growth in Q3. On one hand, this is due to the high base of the major series liquor product Moutai 1935 at the end of 2023, and on the other hand, the company has continued to stop shipments of Moutai 1935 at the end of the year to control supply and support prices, restructuring the distributor system. By the end of 2024, the batch price of Moutai 1935 stabilized around 700 yuan, and the channel entered a healthy turnover phase.

4. Direct Sales Maintain a High Proportion. From the channel structure perspective, the direct sales proportion in Q4 2024 was 45.5%, slightly down from 47.2% in Q3 but still maintaining a high level. This is mainly because the company increased the supply of non-standard products (1000ml Feitian, cultural and creative products, etc.) in Q4 (non-standard products are often supplied through direct sales channels). In addition, the slowdown in the growth of series liquor also caused the proportion of distributor channels to temporarily decline(The distribution channels for series liquor currently have a high proportion.) Adjusting the allocation ratio of Moutai liquor and series liquor to achieve performance targets is also a classic operation of Moutai.

5. Gross margin slightly improved, expense ratio remained stable. Due to Moutai increasing the investment in non-standard products in Q4, the slight improvement in product structure drove the gross margin to rise from 92.6% in the same period last year to 93%. In terms of expense investment, the company clearly stated at the Moutai dealer conference in early 2024 that it would increase marketing investment in series liquor to seize market share, thus the sales expense ratio slightly increased from 3.1% to 3.2%. Due to the industry's downturn, the company strictly controlled various administrative expenses, resulting in a management expense ratio decrease of 0.2 percentage points to 5.1%, and ultimately the overall net profit margin remained stable.

6. The target growth for the entire year of 2025 is 9%. According to the guidance in the annual report, the company expects to achieve a total revenue growth of about 9% compared to the previous year in 2025. In addition, the company plans to distribute a cash dividend of 276.2 yuan (including tax) for every 10 shares to all shareholders, totaling a cash dividend distribution of 34.67 billion yuan (including tax). Dolphin Research estimates the dividend yield to be approximately 3.3%, slightly higher than the previous two years.

7. Overview of core financial information

Dolphin Research's overall view:

After reviewing the 2024 annual report, Dolphin Research's intuitive feeling is that during the downturn of the liquor industry, the big brother "Moutai" is not having an easy time either, but it has managed to withstand the pressure test of the downturn by leveraging its absolute leading position in the industry through a powerful strategy—directly proposing factory prices and slightly increasing the release of aged liquor to barely meet the annual targets.

So, from the current standpoint, how should we view Moutai's growth potential and valuation? Here are some of my thoughts for reference:

First, from the perspective of Moutai liquor's growth potential, it boils down to two factors: volume and price. In terms of volume, based on Moutai liquor's production process (one year of production, four years of storage), the base liquor available for sale in the current year can be roughly estimated as 85% of the Moutai liquor production five years ago (there will be some loss during the storage and aging process).

Following this logic, Moutai liquor's production in 2020 was 50,200 tons, which was almost unchanged from 2019. In 2021, Moutai liquor's production was 56,500 tons, a year-on-year increase of 12.6%, reaching the production capacity limit (Moutai's planned production capacity is 56,000 tons). The production for 2022 and 2023 was 56,800 tons and 57,200 tons, respectively, which is basically at the planned production capacity limit and similar to the level of 2021.

This also means that from the sales rhythm perspective, Moutai liquor's sales will have almost no increase in 2025, and after the release in 2026, it will again fall into a zero-increment dilemma in 2027 and 2028. According to Dolphin Research's estimates, the CAGR of Moutai liquor sales in the next three years will be approximately 4%, which means that without considering the release of aged liquor, the remaining growth potential can only come from the price side (directly proposing factory prices or increasing the proportion of non-standard products) and series liquor contributions.Due to the fact that Moutai just raised its ex-factory price at the end of last year, the probability of proposing another factory price increase in the short term is not high. The inventory of non-standard liquor has significantly accumulated over the past two years (as Moutai greatly increased its direct sales ratio). Although there has been some digestion, it is still in the tail end of destocking, and the possibility of continuing to increase volume significantly is also low. This means that in order to achieve growth targets, the series liquor must take on the heavy responsibility; otherwise, the pressure on Moutai will not be small.

From the analysis above, it can be seen that with limited growth in Moutai liquor sales, its own growth potential will naturally be discounted, which is also the main reason for Moutai lowering its growth target for 2025.

From the perspective of the liquor industry cycle, comparing to the liquor downturn cycle in 2013 when the three public consumption restrictions were imposed, Moutai's wholesale price dropped to around 850, after which consumption quickly rebounded. This round of liquor downturn cycle is evidently longer than the previous two rounds.

Since the second half of 2021, the liquor industry has entered a long destocking cycle. According to channel research information, the current channel inventory of regular Moutai (Feitian) has reached a very low level, while non-standard products, which had a significant accumulation in previous years, have also decreased to about one month. Therefore, from the inventory cycle perspective, it is currently close to the end of the cycle.

Finally, on the valuation level, Dolphin Research will first discuss its views in conjunction with Moutai's wholesale price for everyone's reference. Dolphin Research has detailed in Moutai: Can the pillar still support the backbone of A-shares? - that 2200 yuan is a reasonable level for Moutai's wholesale price, while the bottom line for the wholesale price is 2000 yuan. According to the latest data on liquor prices today, Moutai's wholesale price has fallen to around 2230, close to the reasonable wholesale price level in Dolphin Research's view.

However, from historical experience, Moutai generally only intervenes vigorously to bring the wholesale price back to rational levels when the price significantly deviates from the reasonable level (fluctuating by more than 20%). Therefore, from this perspective, the likelihood of Moutai launching aggressive measures to boost the wholesale price is not high.

From the perspective of relative valuation, combined with the company's guidance and Dolphin Research's predictions, the profit growth center for Moutai in the next three years is around 10%. Considering Moutai's valuation premium, if given an 18x multiple, along with Moutai's cash on hand, it corresponds to a market value of only about 1.7 trillion yuan. Therefore, unless the wholesale price stabilizes and rebounds, Dolphin Research still recommends a cautious wait-and-see approach.

The following is a detailed interpretation of the financial report:

I. Performance slightly exceeds expectations, annual target successfully completed

In Q4 2024, Moutai achieved a revenue of 51 billion yuan, a year-on-year increase of 12.8%, slightly exceeding market consensus expectations (market expectation was 50.5 billion yuan). The growth rate slightly slowed compared to previous quarters due to the high base in the fourth quarter of last year, which was within expectations. For the full year, the company's revenue grew by 15.7% year-on-year, successfully achieving the 15% target set at the beginning of 2024, once again demonstrating the certainty of Moutai's performance (over the past 10 years, except for 2013 when the national level restricted "three public consumption," the company has exceeded the annual targets set at the beginning of the year).

In terms of profit, Moutai achieved a net profit attributable to shareholders of 25.4 billion yuan in Q4 2024, a year-on-year increase of 16.3%, which is faster than the revenue growth rate. Dolphin Research speculates that this is mainly due to the company's increased supply of Moutai liquor (both non-standard and aged liquor) in the fourth quarter.

II. Moutai liquor: Increase in both volume and price

In Q4 2024, Moutai liquor achieved a revenue of 44.8 billion yuan, a year-on-year increase of 13.9%. For the full year, Moutai liquor achieved a sales volume of 46,000 tons in 2024, a year-on-year increase of 10.2%. If we estimate the sales volume based on the production of Moutai liquor five years ago (the actual production of Moutai liquor in 2019 only increased by 0.02 tons), the increase in available base liquor for sale in 2024 is actually not much, while the actual sales volume exceeded expectations. Dolphin Research speculates that this is mainly due to Moutai increasing the supply of some aged liquor.

The price per ton increased by 4.6% year-on-year, mainly due to the increase in Moutai's ex-factory price starting from November 2023 (from 969 to 1169).

III. Series liquor: Control inventory and maintain prices, reorganize channels, further slowdown

In Q4 2024, series liquor achieved a revenue of 5.29 billion yuan, a year-on-year increase of 5.2%, which is a further slowdown compared to the 13% growth rate in Q3. On one hand, this is due to the high base of the large single product Moutai 1935 at the end of 2023, and on the other hand, the company has continued to stop shipments of Moutai 1935 at the end of the year to control inventory and maintain prices, reorganizing the distributor system. By the end of 2024, the batch price of Moutai 1935 stabilized around 700 yuan, and the channel entered a healthy turnover phaseIn addition, according to information from the dealer symposium at the end of last year, the target for series liquor in 2025 is not less than the average growth rate of Moutai over the past five years (corresponding to a 15% compound annual growth rate), indicating that the company has significantly increased its emphasis on series liquor.

Combined with the company's planned expenditure on series liquor, Moutai's investment in sauce-flavored liquor in 2025 will increase by 1.5 billion yuan compared to 2024, a year-on-year increase of 50%. Such aggressive market investment confirms that Moutai will vigorously participate in the competition in the sub-high-end and mass price segments through series liquor in 2025.

According to the previous analysis, against the backdrop of slowing growth in available Moutai liquor sales, increasing the investment in series liquor to alleviate the growth pressure on Moutai liquor seems to be an inevitable move for Moutai. From the overall impact on the liquor industry, competing sauce liquor products in the same price range will inevitably face more severe "dimensionality reduction attacks," accelerating the clearance of mid-to-low-end sauce liquor.

IV. Direct Sales Proportion Remains High

From the channel structure perspective, the direct sales proportion in Q4 2024 was 45.5%, slightly down from 47.2% in Q3 but still maintaining a high level. This is mainly due to the company's increased investment in non-standard products (1000ml Feitian, cultural and creative products, etc.) in Q4 (non-standard products are often sold through direct sales channels). In addition, the slowdown in the growth of series liquor has also led to a temporary decrease in the proportion of dealer channels. (Currently, the dealer channel proportion for series liquor is relatively high). Adjusting the investment ratio of Moutai liquor and series liquor to achieve performance targets is also a classic operation for Moutai.

V. Is the "Reservoir" Running Low?

From the "reservoir" contract liabilities perspective, as of the end of Q4, Moutai's contract liabilities amounted to 9.6 billion yuan, a significant decline of 32% compared to the same period last year. Since Q4 is followed by important holidays such as New Year's Day and Spring Festival, which are traditional peak seasons for liquor consumption, dealers generally tend to make larger payments and stock up in advance to prepare for the peak season. Therefore, contract liabilities in Q4 are usually at their highest for the year.

The significant decline in contract liabilities this time indicates that, against the backdrop of continuously falling wholesale prices, most dealers' willingness to make payments is not as strong as in previous years, adopting a more cautious wait-and-see attitude.

6. Gross margin slightly improved, expense ratio remained stable

Due to the increased launch of non-standard products in Q4, the product structure slightly improved, driving the gross margin from 92.6% in the same period last year to 93%. In terms of expenses, since the company clearly stated at the beginning of 2024 during the Moutai distributor conference that it would increase marketing investment in series liquor to seize market share, the sales expense ratio slightly increased from 3.1% to 3.2%. As the "big brother" of liquor, Moutai has also started proactive marketing and actively seeking change, which undoubtedly puts more pressure on other liquor companies.

In addition, due to the industry's downturn, the company strictly controlled various administrative expenses, resulting in a management expense ratio decrease of 0.2 percentage points to 5.1%, and ultimately the overall net profit margin remained stable.

Changqiao Dolphin Research "Kweichow Moutai" historical articles:

Earnings Season

October 26, 2024 earnings report commentary: Moutai: Can the pillar still support the backbone of A-shares?

April 3, 2024 earnings report commentary: Anyone can collapse, but only Moutai is a "tumbler"

March 31, 2023 earnings report commentary: iMoutai safeguards, Moutai's "stabilizing force" is here to stay

October 17, 2022 earnings report commentary: Moutai's performance is solid, market sentiment is key

August 3, 2022 earnings report commentary: Pillar reports: Flowing A-shares, solid Moutai

April 26, 2022 earnings report commentary: Direct sales continue to gain momentum, Moutai keeps dancingMarch 31, 2022 Financial Report Review: Continuous Marketing Transformation Actions, Moutai Can Still "Fly" Without Proposing Factory Prices

October 23, 2021 Financial Report Review: New Leader, New Atmosphere, Moutai Still Worthy of Faith

July 30, 2021 Financial Report Review: Kweichow Moutai: Performance Is Not the Core Issue, Valuation Risk Needs Attention

March 30, 2021 Financial Report Review: Kweichow Moutai: Performance Slightly Exceeds Expectations, Still Hard to Conceal the Fact of Short-Term Overvaluation

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