Incident: Recently, there have been fluctuations in Maotai's price. We believe that the company's fundamentals are still stable, and price fluctuations should be viewed rationally. Along with the correction in stock prices, the allocation value increased.
How to view and interpret Maotai's recent price fluctuations:
(1) Looking at the level of the year, the market and industry interpretations include: ① the marketing process accelerated in March; ② For example, the Maotai product collection increased from 45 at the end of 23 to 56 at the end of the first quarter of '24, and products of various specifications such as Xunfeng 375 ml 200,000 bottles (equivalent to 75 tons, accounting for close to 0.2% of Maotai wine sales in '23) were put on the market, thereby squeezing out the demand for ordinary flying days; ③ commercial demand in the off-season was still weak, etc.
(2) Looking at the 3-5 year dimension, the trend in Maotai's pricing basically reflects changes in Maotai's supply pace. This is a core contradiction. Reviewing the price trend of Flying Maotai (same below) since 2020, you can see: First, whether it is a loose bottle or a full box, Maotai prices generally show a pattern of rising sequentially from Qingming to Dragon Boat Festival to Mid-Autumn Festival, and then falling back around the Spring Festival the following year. Second, in 2020/21/22/23, compared to around Ching Ming Festival, the bulk price of loose bottles increased by about 14%/13%/3%/1%, respectively; the bulk price increase of the whole box was about 16%/6%/0%, respectively. From Dragon Boat Festival to Mid-Autumn Festival, the increase in bulk prices for loose bottles was about 4%/4%/3%/-2%, respectively, indicating that the demand elasticity of consumer attributes is decreasing year by year. Third, in 2023, Maotai's bulk price center was 2,950 yuan, and the highest/lowest price fluctuation range during the year was only 2%, indicating that the elasticity of demand for financial attributes has leveled off.
In 2020-2023, Maotai liquor sales increased from 34,000 tons to 42,000 tons, with a three-year CAGR of 7%, with a year-on-year sales volume of -1%/6%/5%/11% year-on-year in 20/21/22/23. Judging from the years when supply fluctuated greatly, there is a large relationship between Maotai's wholesale price trend and the supply growth rate of Maotai liquor.
(3) Outlook: We believe that the price of Maotai liquor is a simultaneous indicator reflecting the relationship between supply and demand, rather than a forward-looking indicator. Although the pace of demand recovery cannot be predicted, Maotai has plenty of means to adjust the volume-price relationship.
The company can still reduce demand for volume growth by optimizing channels (direct sales account for 47% in 23Q4) and product structure (the market generally expects the increase in Maotai volume to slow down in 24 compared to 23), thereby effectively easing supply-side pressure on prices.
Regarding the judgment on stock prices: (1) Maotai's price basically reflects changes in the strength and weakness of supply and demand. Recent price fluctuations indicate that recovery on the demand side remains to be seen, but the increase in demand recovery expectations and the introduction of economic stimulus policies will all be catalysts for higher valuations; (2) Considering the slowdown in supply growth this year, we believe that downward price fluctuations will not be transmitted to the report, and the disturbance of price prices on the stock price will further enhance Maotai's allocation value.
Profit forecast, valuation and rating: Maintain the 2024-26 net profit forecast of 885.43/1014.56/115,368 billion yuan, equivalent to EPS of 70.49/80.76/91.84 yuan. The current stock price corresponds to P/E of 24/21/18 times, maintaining a “buy” rating.
Risk warning: Demand for high-end liquor is weak, channel reforms fall short of expectations, and the price of Flying Moutai is declining.