Kweichow Moutai: Ex-Factory Price Hike Lifts Our Valuation by 3% to CNY 1,780

Wide-moat Moutai 600519 raised its ex-factory price by 20% for the flagship 53-degree Moutai Liquor from Nov. 1. This is the first price hike since 2018, when the firm lifted its ex-factory price to CNY 969 per 500 milliliter bottle from CNY 818. The timing came in earlier than our expected mid-2024 and the rate is higher than our assumption of 10%. This is encouraging, given the current sluggish consumption in China, and which we think reaffirms Moutai’s strong competitiveness and leading position in the baijiu market. Given that the hike will not affect direct-to-customer channels, which make up 44% of the firm’s total baijiu sales, we estimate this will increase Moutai’s average selling price by 4%-5%. We lift our five-year net profit CAGR to 15.1% between 2022 and 2017, up from 14.8% in our earlier assumptions, and we raise our fair value estimate to CNY 1,780 per share from CNY 1,730, accordingly. We think the shares are fairly valued as of the Oct. 31 market close.

As China’s most distinguished baijiu brand, Moutai boasts strong pricing power underpinned by its distinctive cultural status, unparalleled brand image, and exceptional product quality. The current wholesale price of CNY 2,650 per 500ml bottle implies a distributor margin of nearly 130% after the 20% hike in ex-factory price, which should provide sufficient buffer against the current sluggish consumption in China.

We think Moutai’s ex-price hike unlocks the upside of baijiu company’s price reset cycle. However, the sluggish consumer confidence may still pressure the wholesale prices of most baijiu firms. Currently, the wholesale price of Wuliangye is CNY 960 per 500ml bottle, and National Cellar 1573 of Laojiao is CNY 880. Both are lower than the product’s average ex-factory prices of CNY 969 and CNY 890, respectively, meaning the companies need to incentivize distributors through higher rebates. As such, we don’t expect material upside to our forecasts of other baijiu firms, assuming a price hike.