Kweichow Moutai's 2023 revenue and profit were slightly higher than previous guidance. In 2023, the company achieved total revenue of 1505.6 billion yuan, +18% year over year; corresponding revenue for 4Q23 was about 45.24 billion yuan, +19.8% year over year, higher than market expectations. The company's contract liabilities at the end of 2023 were $14.13 billion, and 4Q23 revenue after considering the impact of contract liabilities was $47.66 billion, +16.3% year-on-year. Gross margin remained flat at 92.0% year on year in 2023, and gross margin for 4Q23 was 92.6%, up 0.6 points year over year. In 2023, the gross margin of Maotai wine decreased slightly by 0.1 points to 94.1%, and the product structure's gross margin increased 2.5 points to 79.8%. The three expense rates in 2023 were 24.4%, up 0.1 points year on year. The tax and sales expenses ratio increased 0.3/0.5 points year over year to 14.8%/3.1%, respectively, and the management fee ratio decreased 0.6 points to 6.6% year on year. 4Q23 was the same trend. In 2023, the company's net profit to mother was 74.73 billion yuan, +19.2% year-on-year, and the net interest rate increased 0.4 points to 49.6%; the net profit corresponding to 4Q23 was 21.86 billion yuan, +19.3% year-on-year, exceeding market expectations. Net cash flow from operating activities in 2023 was 66.59 billion yuan, a significant increase from last year. The net cash flow from operating activities corresponding to 4Q23 was 16.59 billion yuan, a year-on-year decrease of 39.2%. Due to the implementation of special dividends, the 2023 dividend rate was 75.67%. Recently, the price of Maotai has continued to decline. Our judgment is related to insufficient consumption power and the large amount of Maotai liquor sold.

4Q23 The volume of Maotai liquor and series liquor exceeded expectations. The annual sales volume of Maotai wine was 42,000 tons, exceeding double digits for the first time since 2018. In 2023, Maotai's revenue was 126.59 billion yuan, +17.4% year on year; corresponding to 4Q23, Maotai's revenue was 39.32 billion yuan, +17.6% year over year, exceeding expectations. The operating revenue of the wine series was 20.63 billion yuan, +29.4%. Among them, sales volume broke 10 billion in 1935, and Maotai Prince Liquor (classic sauce flavor), Golden Prince, Han Sauce, and Maotai Welcome Wine (purple) contributed more than 10 billion dollars; corresponding to the 4Q23 series, revenue was 5.04 billion yuan, an increase of about 48.2% over the previous year, exceeding market expectations. In 2023, the Maotai liquor market volume was 42,000 tons, up more than 4,200 tons from last year, and +11.1% year over year. For the first time since 2018, the volume increase exceeded double digits.

In 2023, the tonnage cost of Maotai liquor increased by 7.0%/11.7%, respectively, and the tonnage price increased by 5.7%/25.7% respectively. The increase in tonnage price of serial wine far exceeded the cost per ton and gross margin increased a lot, while the increase in the tonnage price of Maotai liquor did not cover the tonnage cost, so gross margin declined slightly. In 2023, 57,200 tons of Maotai liquor were produced, up 0.7% year on year; 42,900 tons of wine based wine series were produced, up 22.4% year on year.

For the first time since 2018, the price of alcohol per ton of direct sales channels fell by a low number of units in 2023, and the share of iMaotai channel revenue was stable. Direct channel revenue in 2023 was 67.23 billion yuan, +36.2% year over year; corresponding 4Q23 direct revenue was 21.03 billion yuan, +20.2% year over year. Affiliate channel revenue was 80 billion yuan, +7.5% year over year; corresponding 4Q23 franchise revenue was 23.33 billion yuan, +20.7% year over year. Direct marketing/franchise sales in 2023 were 15,57,600 tons respectively, +39.8%/+1.1% year over year, corresponding to the price of direct-managed/franchised tonnes of alcohol -2.6%/+6.3% year-on-year, respectively. The average direct management price declined for the first time since 2018. Direct revenue in 2023 accounted for 45.7% of alcohol revenue, corresponding to 47.4% in 4Q23, which is basically the same as 4Q22. In 2023, the company achieved revenue of 22.37 billion yuan through the i-Maotai direct management platform, accounting for 33.3% of the company's direct revenue and 14.9% of alcohol revenue; corresponding to 4Q23 i Maotai's revenue of 7.5 billion yuan, accounting for 35.7% of direct revenue, down 37.4% from 3Q23. Other online platforms in 2023, including new models and new business formats such as the Xun Fengyun Platform, MOUTIME, and Pi Mei Community, had revenue of 1.83 billion yuan, and the main products were products such as 24 energy liquor. Online platforms sell high-end products, and iMaotai/other online platforms have gross margins of 96.09%/95.95%, respectively.

Investment recommendations and profit forecasts. The company's business target for 2024 is a year-on-year increase in total revenue of about 15%. The strategy has been upgraded, emphasizing that terminals are king, and the digital planning is clear. At the same time, we will accelerate the construction of international terminals and continue to increase product innovation for Maotai's non-standard wine and cultural wine. The company raised prices for non-direct channel Maotai liquor and some non-standard liquors at the end of 2023, and there is a high degree of certainty that the 2024 performance will meet the standards. We expect Kweichow Moutai's revenue for 2024-2026 to be 1739.8/2000/228.14 billion yuan, up 15.6%/15.0%/14.1% year on year, up 0.1% and 1.3% respectively from previous expectations. Net profit due to mother in 2024-2026 was 874.6/1007.3/115.22 billion yuan, respectively, 17.0%/15.2%/14.4% year-on-year, up 1.9% and 2.0% respectively from previous expectations. Kweichow Moutai's current stock price for 2024-2026 is 24.6X/ 21.4X/18.7X, respectively. We maintained the company's “superior to the market” rating, gave a 24-year valuation of 28 XPE, and maintained a target price of 2,050 yuan, with 14% room for growth compared to the current price.

Risk warning. Consumption power fell short of expectations, and economic recovery fell short of expectations.