Wuliangye Earnings: Despite Weaker-Than-Expected Growth, Outlook Is Still Promising

We maintain our fair value estimate for wide-moat Wuliangye at CNY 196 per share, despite the company’s weaker-than-expected second-quarter results, with sales growth decelerating to 5.1% year over year from 13.0% in the prior quarter, weaker than the 20.4% sales growth at peer Kweichow Moutai. We think this reveals some headwinds from the sluggish macro conditions. However, we think Wuliangye has proactively optimized its product strategy and channel structure, allowing it to be better positioned for the channel restocking process ahead of the expected pick-up in demand for October Golden Week. We think the shares are slightly undervalued as of Aug. 28, and the recent share price weakness is a buying opportunity.