Incident: On the evening of April 26, 2024, Kweichow Moutai (600519) released its first quarter report. The company achieved operating income of 45.776 billion yuan in the first quarter, up 18.11% year on year; net profit to mother was 24.065 billion yuan, up +15.73 pct year on year; net profit without deduction to mother was 24.051 billion yuan, +15.75% year on year.
Results increased significantly in the first quarter, and the “good start” exceeded expectations. The company's performance in 24Q1 was even better. 24Q1 revenue and net profit to mother rose 18.04/15.73 pct year on year. In 24Q1, the company's gross margin/net margin reached 92.61%/54.36% respectively, a year-on-year change of +0.02/-1.18pct. The operating revenue of Maotai liquor/series wine was 397.07/5.936 billion yuan, +17.75/+18.39pct, accounting for 86.99%/13.01% of alcohol, respectively, with a year-on-year change of -0.06/+0.06pct. The company's steady 24Q1 performance showed the strong resilience and demand rigidity of leading wine companies during a period when the industry was slightly weak.
Dealers are confident about the future, and the total amount of advance payments has exceeded 10 billion dollars. 24Q1 wholesale agent/direct sales revenue was 263.24/19.319 billion yuan respectively, +25.78/+8.49pct year-on-year. The number of dealers in 24Q1 changed +17 over the same period last year to 2203. The company's contract liabilities in 24Q1 reached 9.523 billion yuan, up 14.32% year-on-year compared with 23Q1. The rise in contract debt lays the foundation for the company's future revenue conversion, and also reflects the firm confidence of dealers in selling the company's products.
The i-Maotai channel performed well, and the digital marketing platform continued to expand. In 24Q1, Kweichow Moutai achieved tax-free alcohol revenue of 5.343 billion yuan through the “i Moutai” digital marketing platform, up 8.97% year-on-year from 23Q1. i Maotai's share of revenue reached 11.67%, which remained stable compared to 23Q1. The company launched 375ml Xunfeng Liquor in '24, using Xunfeng Digital World as the only sales platform. Digital collections on the Xunfeng platform correspond to physical items, etc., making them investment attributes such as collecting and donating drinks, thus cultivating young consumers to have an in-depth understanding of the production steps of Flying Moutai. The increase in the share of direct sales channels indicates the strong market appeal of digital marketing platforms. It also means that the company's perception and grasp of consumers is more direct and flexible, increasing the company's profit base.
Optimize the cost structure and increase first-line sales investment. The sales expense ratio reached 2.45%, a year-on-year change of +0.53 pct; the management expense ratio (including R&D) changed -0.67 pct year over year. The company continues to optimize its cost structure. By increasing investment in sales expenses and reducing management expenses, the company has been able to occupy a more favorable position in market competition and further consolidate and expand its market share.
Recently, there has been a lot of controversy in the market over the price drop of Flying Moutai. We expect the main reasons are: 1) the liquor industry has entered the traditional low season after the peak season of the Spring Festival, and the overall economy is still recovering weakly. In this context, business and gift demand has declined year-on-year; 2) Xunfeng App launched a 375ml Flying Sky, which sparked price comparisons and controversy; 3) the investment intensity at the beginning of this year increased compared to previous years. In summary, we believe: 1) 500ml Maotai is still the first choice for high-end business and gifts; 375ml Flying Sky is not very replaceable; 2) the company has strong ability to control batch prices; 3) the company has sufficient growth momentum in the long term.
Investment advice: As the price of Maotai liquor rises steadily, the wine series continues to gain strength to help the company expand consumers from all walks of life and is optimistic that the company will continue to grow steadily in the future. We expect the company to achieve revenue of 1742/2005/23.1 billion yuan in 24-26, net profit of 868/1013.115.9 billion yuan, corresponding PE of 24.73/21.19/18.53x, respectively, and maintain strong recommendations.
Risk warning: risk of macroeconomic growth falling short of expectations; risk of increased industry competition; risk of food safety.