China Baijiu Sector: Initiating Coverage of Sichuan Swellfun, Jiugui Liquor, and Anhui Yingjia

We initiate coverage on three narrow-moat-rated China baijiu producers Sichuan Swellfun, Jiugui Liquor, and Anhui Yingjia, with fair value estimates of CNY 71, CNY 82, and CNY 61, respectively. We think Sichuan Swellfun is undervalued, while Jiugui is fairly valued, and Anhui Yingjia is slightly overvalued as of market close on Oct. 11. We continue to like the premium baijiu segment, as we expect demand for premium baijiu to remain more resilient, despite short-term economic swings. Wide-moat-rated Wuliangye Yibin is our top pick in the China baijiu sector, offering the best risk/reward, in our view. We believe its strong brand heritage, supreme product quality, and extensive distribution network have fortressed its competitiveness, allowing it to generate economic profits in the long run.