Incident: Recently, the price of Maotai has continued to weaken. According to today's alcohol prices, the price of Sanfei recently dropped to around 2,200 yuan. In response to declining prices, Maotai also introduced price stabilization policies one after another.
Weak demand is the essential reason, and speculative disturbances amplify price fluctuations. After entering the off-season, 24Q2 failed to smoothly accept the good demand from Yuanchun. The two small peaks of May 1st and Dragon Boat Festival did not clearly catalyze high-end business banquets and gifts, which suppressed prices to a certain extent. However, high-frequency fluctuations in the short term have broken out of regular seasonal cycle performance, mainly due to the disruptive effects of speculation. E-commerce subsidies and scalper sales amplify price fluctuations during the off-season. Structural factors on the traditional channel side have not been touched upon, and the confidence of large merchants with large supplies and sufficient capital has not been damaged; they hold on to the attitude of covering goods and reserving sales. We believe that the price market can still return to a steady state in the short term.
Maotai actively raised prices, expanding from controlling direct sales to controlling channels. Maotai's supply-side price-raising measures are gradually gaining strength. In the beginning, the direct management system was mainly controlled, including suspending 1499 corporate group purchase applications, suspending the operation of Xunfeng Liquor, and shrinking the Guizhou State-owned specialty products platform. Recently, channel-side regulation has been gradually increased: 1) abolishing the launch of large boxes of 12 bottles. Unpacking large boxes is an important source of dispersion in the distribution market; 2) canceling dealers' “unpacking orders” to reduce scattered circulation; 3) suspending the sale of boutique products, such as non-standard Maotai for 15 years, to curb the follow-up price drop of non-standard products; 4) carry out repayment and delivery in batches to avoid centralized market placement. We believe that Maotai's response in this round was relatively cautious and accurate, taking into account the balance between performance and the market, sending clear price stability signals to dealers and the market, while also retaining sufficient momentum. We judge that Maotai's toolbox is still sufficient, such as mobilizing dealer repurchases, phased product control, etc., and it is expected that it will still be able to make flexible moves in line with market changes.
Short-term price fluctuations have limited impact on Maotai's performance. In terms of price, there is a big gap between Maotai's wholesale price and the factory price (1,169 yuan). Channel profits are still abundant. Phased price fluctuations do not suppress the factory price; moreover, the last round of price increases have basically locked in some performance growth. In terms of volume, the current repayment pace is steady, and dealer confidence is stable. As of 24Q2, the repayment schedule has been around 55%, which is basically the same as the previous year, and subsequent repayments may proceed in an orderly manner.
Investment advice: We believe that the adjustment of the price system will have an impact in the short term, but in the medium to long term or the redistribution of financial and consumer demand, Maotai's performance side is still very certain. Short-term pessimism suppresses valuations and does not change the long-term value of liquor leaders. The company is expected to achieve net profit of 875/1016/117.4 billion yuan in 2024-2026, an increase of 17.1%/16.0%/15.6% year-on-year. The corresponding PE is 21.1/18.2/15.7 times, respectively. The corresponding dividend rate is 3.4% (2023), maintaining a “buy” rating.
Risk warning: macroeconomic growth falls short of expectations; price fluctuations exceed expectations; food safety risks.