Anhui Yingjia Earnings: Robust Demand and Mix Upgrade Drive Sales Growth and Margin Expansion

Narrow-moat Anhui Yingjia posted decent second-quarter results, with revenue and net profit rising 19% and 28% year over year, respectively. The results were largely in line with our expectations, which reaffirmed our view that demand for mainstream-focused leading baijiu brands should remain robust despite slower economic growth and still-sluggish consumer sentiment in China. We believe Yingjia’s leadership in its home market of Anhui province positions it as one of the key beneficiaries of increased traveling and socializing, also aided by the stronger local economy versus the other provinces. These will continue to drive robust demand and a solid premiumization trend for the firm’s baijiu sales. In addition, an accelerating mix upgrade, along with improving cost efficiency, should further support margin expansion. We maintain both our earnings forecasts and our fair value estimate of CNY 66 per share for Yingjia, and we think the shares are undervalued currently, underpinned by a strong five-year net profit compound annual growth rate of 16% between 2023 and 2028.