We continue to prefer high-end white wine sector given its high growth visibility (scarcity + favorable competitive landscape + rigid demand). Channel and product mix optimization as well as price hikes should drive ASP growth. We lifted Moutai and Wuliangye TP to RMB2,153.3 and RMB347.5, implying 3.1x and 2.7x PEG in FY21E, respectively, which is lower than 3.5x/3.4x of white wine peers and int’l wine peers. Maintain Buy.
- Moutai series wine products raised prices by 10-40%. News said Kweichow Moutai will also reduce production volumes of Wangzijiu (“王子酒”) and Yingbinjiu (“迎宾酒”) by 75-80%, and terminate certain products and end marketing fees. We think the volume cut mainly targets low-price low-margin Yingbinjiu and estimate total sales volume of series wine to rise 2% to 30,000 tonnes in FY21E. Series wine segment could achieve growth of revenue and net profit by optimizing product portfolio and reducing promotion expenses. We think this is a positive news but these measures would not have material earnings accretion to the Company given that series wine segment accounted for 10% of revenue in FY20E.
- Moutai has large room to raise price but timing could be 3Q21E. According to our channel checks, Moutai distributors will prepay for quota for Feb and Mar 2021 this week. If the Company does not raise ex-factory price of Moutai this week, we think the price hike could postpone until 3Q21. That said, the Company still has ample room to increase its ex-factory price (RMB969) given that wholesale price now trades at around RMB2,900.
- Wuliangye FY20 results largely in line. Revenue rose 14% to RMB57.2bn. Net profit also increased 14% to RMB19.9bn. Revenue was 1% below our estimates and in line with consensus. Net profit was 3% lower than our estimates and consensus.
- Channel and product optimization to continue in FY21E. (1) Moutai: The Company will optimize its channel mix by increasing sales volume in direct sales, e-commerce and supermarket channels as well as sales of high-price Moutai products like Shengxiaojiu Jingpinpiu. (2) Wuliangye: The Company targets to have 60%/40% channel sales mix between distributors/corporate group purchase & e-commerce in long-term. The increase of corporate group purchase and e-commerce sales mix would enhance revenue growth and GPM because of higher selling prices.
- Maintain Outperform and lifted TP. (1) Moutai: We trimmed FY20/21/22E net profit by 1%/6%/1% and estimate a 17% EPS CAGR from in FY19-22E (vs 18% previously). Given higher sector valuation benchmark, our TP is raised from RMB2,153.3 to RMB2,313.0, based on 53.7x FY21E P/E, still at 15% premium to other staples segment leaders’ average. (2) Wuliangye: We trimmed FY20/21/22E net profit by 1-2% and estimate 20% EPS CAGR in FY19-22E. We raised TP from RMB307.8 to RMB347.5, at 54.2x FY21E P/E which is still at 1.01x to our target P/E of Moutai (53.7x).
