Incidents:
Kweichow Moutai held the 2023 Annual General Meeting of Shareholders. The number of participants reached more than 1,700, setting a record for the highest number of participants since 2019. At the meeting, Zhang Deqin, Party Secretary and Chairman of the Maotai Group, left the full text, delivered a keynote speech on “Let's Work Together to Work for the Stability, Health, and Sustainable Development of Maotai”, and answered investors' concerns.
Comment:
How to be stable, healthy and sustainable? Adhere to and strengthen the company's core competitiveness. Zhang Deqin, Party Secretary and Chairman of the Maotai Group, believes that Maotai needs to be stable, healthy, and sustainable: first, it requires shareholders' understanding and support; second, it needs to stick to and maintain Maotai's core competitiveness; and third, it requires talent and innovation.
1) Shareholders' understanding and support: Maotai's achievements today have accumulated the wisdom, sweat, and hard work of generations of Maotai people.
When Maotai was born in the mountains, he is bound to have the same responsibilities and responsibilities as a mountain. If Maotai wants his parents and his hometown to become rich together, Maotai must be steady and go far.
2) Adhere to core competitiveness: Maotai's core competitiveness includes quality, brand, technology, environment and culture. Regarding quality, Zhang Dong proposed “three obedience”, that is, when there is a conflict between production, efficiency, speed, and quality, they all obey quality and strengthen quality control in all aspects to ensure that the quality of each bottle of Maotai is the same; for brands, Zhang Dong proposed two things: brands are the consensus of relative groups and scenarios. The key to brand building is to enhance brand reputation, and calls on shareholders, dealers, and all sectors of society to participate to continuously improve Maotai's reputation.
3) Talent and innovation: Maotai will use greater sincerity to attract talents, motivate talents with more performance, and make the company develop better and more stable; in addition, Maotai will continue to innovate. It has tried a lot in the past, and will never stop in the future to ensure Maotai's long-term steady growth.
The new chairman is a native of Renhuai and an old Maotai native, and has extensive experience in the wine industry. Mr. Zhang Deqin was born in Renhuai, Guizhou. He joined Maotai after graduating from college in 1995. He served as Maotai Brewery Technician, Director, Assistant General Manager and Deputy General Manager of Maotai Group. He worked in Xi Jiu from 2010 to 2018 and 2022. He served successively as the general manager and chairman of Xi Jiu, and has nearly 30 years of experience in wine production and management. Since 2018, Maotai has experienced the Li Baofang era, Gao Weidong era, and Ding Xiongjun era. They had no experience in the wine industry before they took office. Chairman Zhang Deqin has extensive experience in the wine industry. We believe that under the leadership of the new ****tai will hopefully move towards a stable, healthy, and sustainable path.
Competition and cooperation have progressed together, and continued to make steady progress for 24 years. Regarding competition for local liquors such as Xijiu, the company expressed the hope that the two sides can improve, complete each other, and make further progress during the competition process. Furthermore, the company's shareholders' meeting reviewed and approved the “2024 Financial Budget Plan”, clarifying the target of 15% revenue growth in 24, and the company is expected to continue to make steady progress in 24.
In the medium to long term, the industry has adjusted more than half, and we are looking forward to the industry's recovery. We compare this round of liquor adjustment cycle with the previous round of adjustment, and think as follows: 1) Cycle judgment: According to the experience of the previous round of adjustments (beginning of 12Q4-16, lasting more than 3 years), the 21Q4 adjustment is expected to begin and end in '24. Furthermore, the stock price of the previous round of adjustments bottomed out at 15Q3. This round is expected to be at the dawn of early '15, so we should not be overly pessimistic; 2) Expected pace:
Deterioration in terminal sales/inventory backlog (achieved) — wine company adjustments in strategic direction and personnel changes (already occurring) — strategy implementation/terminal improvement (half a year) — report improvement (expected 25 years); 3) Current points and concerns:
Currently in the implementation of the strategy, the liquor circuit focuses on high-end and real estate liquors. Stocks focus on stability and certainty. For stability, select high-end (Kweichow Moutai) and deterministically preferred real estate wine (Suzhou Liquor, Huijiu, etc.); 4) At the company level: We expect volume and price increases over the next three years, and the company's performance is highly deterministic. On the sales side, due to the Maotai wine process, sales volume in year T is linked to T-4 base wine production. The company has sufficient base wine reserves for the next three years. The CAGR for Maotai wine-based wine is 4.4%, and the CAGR for series wine-based wine is 11.8%. Sufficient base wine reserves support subsequent product sales; on the tonnage side, the product structure is expected to continue to upgrade with the launch volume of non-standard products and the release of large single products such as 1935.
Investment advice: In the short term, the company has set a 15% performance target, which is expected to make steady progress and have strong performance certainty.
Looking at the medium term, based on the experience of the previous round, the current round of liquor cycle adjustments have been made more than halfway. Currently, we are in the implementation stage of strategic changes, and high-end liquor has a cost-effective layout. Furthermore, the new chairman of the company, as an old Maotai native of Renhuai, has deep feelings for Maotai and has rich experience in wine industry management. He is expected to lead Maotai along a stable, healthy and sustainable development path. We forecast that the company's revenue growth rates from 2024 to 2026 will be 15.4%, 16.1%, and 17.1%, respectively, with net profit growth rates of 16.9%, 17.6%, and 17.9%, respectively. EPS will be 69.57, 81.81, and 96.47 yuan, respectively. Corresponding PE will be 23x, 20x, and 17x, respectively, maintaining the company's “buy-A” recommendation.
Risk warning: Competition within the province has intensified, the company has experienced major management flaws; macroeconomic fluctuations have occurred, and liquor consumption has declined sharply.