Financial Services Association, September 18 (Editor, Zhou Ying): Liquor stocks in the A-share market fell collectively again today. By the midday close, Rock shares had fallen to a standstill. Kweichow Moutai fell 2.06%, and the stock price closed at 1277.3 yuan/share. In addition, Jinhui Liquor, Elite, and Tianyou Liquor all fell by more than 2%. It is worth noting that in early trading, Kweichow Moutai once fell to 1268.89 yuan in early trading, falling below the low of 1,333 points before October 31, 2022.

Looking at a longer-term perspective, as of the midday close, Kweichow Moutai had a cumulative decline of more than 24% during the year, with a market capitalization of 1.6 billion yuan, falling to 4th place in A-shares. Compared with the high of 2489.11 on February 18, 2021, Kweichow Moutai's decline was close to a standstill.

Judging from the valuation, as of September 13, the price-earnings ratio of Kweichow Moutai had dropped 20 times. Compared with a valuation premium of more than 70 times three years ago, the overall price-earnings ratio of the China Securities Liquor Index fell to 16.58 times, and the net price-earnings ratio was 4.86 times, which is the 22% fraction of the past ten years.

Why does the liquor sector keep falling?

Why does the liquor sector keep falling? According to the Guotai Junan Research Report, sales in the liquor industry picked up slightly month-on-month, but overall demand in most regions declined year-on-year. Among them, the pressure on the price side was clearly greater than the pressure on the sales side (price pressure represented by Flying Sky). Product sales mainly focused on core traffic items in the price range of 100 yuan to 200 yuan and above 200 yuan.

The above research report also pointed out that recently, the liquor channel has continued to be squeezed at both the profit margin level and turnover level, and the driving effect of expenses on channel repayment has been limited. Combined with the financial data of wine companies for the second quarter of 2024 (cash flow, marginal pressure on advance payments), the research report believes that the channel is gradually losing its cushioning effect, and the expansion of the inventory cycle will be reflected in a clear decline and divergence in the apparent growth rate of enterprises.

Guoxin Securities also said that as Mid-Autumn Festival approaches, the channel is less motivated to prepare goods, the consumer atmosphere is weaker than last year, and consumers are more rational. Due to consumer expectations, gift-related products such as mooncakes and high-end liquor have all declined to varying degrees. By price, sales of mid-range liquor are superior to sub-high-end and high-end liquor; in terms of subregions, sales are under pressure everywhere.

According to today's wine price data, on September 18, the wholesale price of Flying Maotai (original) 53 degrees/500 ml was 2,500 yuan/bottle in 2024, the same as yesterday; in 2024, the price of Flying (disperse) 53 degrees/500 ml was 2,365 yuan/bottle, down 15 yuan from yesterday.

Recently, at the Kweichow Moutai 2024 semi-annual results briefing, investors raised concerns about recent self-media hype about fluctuations in the price of Moutai liquor. In response, Maotai Chairman Zhang Deqin said, “The overall market situation is relatively stable.” He further said that Maotai attaches great importance to the market situation. We carry out in-depth market research in all provinces and regions, hold market work meetings in each province and region, have in-depth discussions and exchanges with representatives from dealers, e-commerce, group buying, provincial and regional self-operation, etc., and continue to improve a strategic and tactical system that is both systematic and collaborative. This ensures Maotai's steady progress.

Referring to changes in the gross margin of Kweichow Moutai alcohol products, Zhang Deqin provided detailed data analysis: “In the first half of 2024, the gross margin of Maotai increased 0.04% year on year, and the gross margin of series wine increased 0.75% year on year. Series wine accounted for 16.09% of alcohol revenue, an increase of 1.56 percentage points over the same period last year.” Zhang Deqin said that the increase in the proportion of wine series in the product structure has had a corresponding dilution effect on the gross margin of overall alcohol products. However, this did not affect the steady growth of Maotai's overall performance; on the contrary, it highlighted the strategic results of its diversified development.

Most “top” fund managers cut positions in Kweichow Moutai

In recent years, although the proportion of Kweichow Moutai held by public funds has decreased, the decline has not been significant. However, the reduction of holdings by some well-known fund managers shows that professional investors have different opinions on Kweichow Moutai's future performance. Some fund managers chose to completely sell Kweichow Moutai shares or even quit the entire liquor industry, while others continued to be optimistic about the high-end consumer goods market and chose to increase their investment when the market was sluggish.

For example, although Jiao Wei of Yinhua Fund still held Kweichow Moutai at the end of the second quarter, his flagship product, Yinhua Wealth Themed Fund's heavy stock holdings, no longer included Kweichow Moutai, indicating that he may have emptied his holdings in this stock. In addition, Jiao Wei also reduced his holdings of other liquor stocks such as Gujing Gongjiu, Shanxi Fenjiu, Luzhou Laojiao, and Yingjia Gongjiu in the second quarter.

Kweichow Moutai was once a long-term heavy stock of the Yinhua Wealth Themed Fund, and it occupied the top position in its holdings for several quarters. Jiao Wei said in the quarterly report that for the consumption upgrade industry represented by high-end liquor, it has become representative of a business model with high ROE, high gross profit margin, and high moat over the past few years. “Needless to say, we are currently at the threshold of a new round of major economic transformation, and these successful business models are facing both external and own challenges. To a certain extent, the higher the gross margin and pricing power in the past, the more vulnerable they are to shocks and questions under the new economic model. In this context, it is possible that valuation adjustments precede profit itself.”

Li Xiaoxing, another fund manager of Yinhua Fund, also reduced his investment in Kweichow Moutai. In the second quarter, Kweichow Moutai was no longer one of the top ten major stocks of the Yinhua Xinjia two-year holding fund he managed, but dropped to 12th place.

Meanwhile, E-Fangda has carefully selected Xiao Nan, who has held the fund for three years, Lao Jienan of Huitianfu Value Select Fund, and Wang Chong and Zhang Xuerong of the BOC Select Fund have all removed Kweichow Moutai from their list of the top ten major stocks.

However, there are also some fund products that have chosen to buck the trend and increase their holdings in Kweichow Moutai.

E-Fangda continued to increase its long-term value holdings in Kweichow Moutai in the second quarter, buying it the third-largest stock. In addition, BOC New Growth also increased its holdings of 0.0898 million shares, making Maotai the second-largest stock; products such as Yuanxin Yongfeng Xingnuo's one-year holdings, Yuanxin Yongfeng Premium Life, and Qianhai Open Source Shanghai-Hong Kong-Shenzhen Advantage Select all increased their holdings in the second quarter. The net worth of these funds has dropped by more than 10% since the second quarter.

Yi Fangda Guo Jie said in the quarterly report that he holds a heavy position in consumer stocks. The industry itself has strong business model stability and sustainability due to its attributes of facing the public, repeated consumption, and branding, and is highly resilient in the face of economic fluctuations. The current data downturn is linearly extrapolated by the market, so he pessimistically believes that performance continues to decline, and there is even no future. This clearly contradicts the industry's own attributes. “We are confident about the future prospects of such individual stocks. We pursue vague correctness in the medium to long term, hold firm in the current market when pessimistic pricing occurs, and expect steady returns. Once the market believes that the economy can stabilize, individual stocks related to the economy and consumption in our portfolio should perform well.”