KWEICHOW MOUTAI(600519)：REVENUE AND PROFIT IN LINE;SHARE OF REVENUE FROM DIRECT-SALES DISTRIBUTION CHANNELS RISES-格隆汇

机构：中金公司
研究员：Wendan WANG/Xiangwei ZHANG/Lan JIANG

2Q22 results in line with our expectations
Kweichow Moutai (Moutai) announced that in 1H22, revenue rose 17.20% YoY to Rmb59.4bn and net profit attributable to shareholders grew 20.85% YoY to Rmb29.8bn. In 2Q22, revenue increased 15.89% YoY to Rmb26.3bn and attributable net profit grew 17.29% YoY to Rmb12.5bn. Revenue and earnings were largely in line with preannounced results and market expectations.
Trends to watch
Revenue from direct-sales distribution channels as a percentage of total revenue reached 40%; distribution channel reform accelerated. In 2Q22, revenue from direct-sales distribution channels jumped Rmb5.3bn YoY to Rmb10.06bn (+112.9% YoY), representing 40% of total revenue at Moutai. Specifically, revenue from its e-commerce platform "iMoutai" reached Rmb4.42bn (tax excluded), and the remainder came from non-standard quotas in direct-sales stores. Revenue from products sold via distributors dropped 10.8% YoY in 2Q22 to Rmb15.2bn. By product, revenue from the Moutai brand rose 14.97% YoY to Rmb21.1bn, with incremental revenue from non-standard products increasing notably. Revenue from series brands grew 22.02% YoY to Rmb4.17bn, mainly driven by incremental revenue from Moutai 1935.
GM increased; contract liabilities rose QoQ. In 2Q22, gross margin (GM) rose 0.8ppt YoY to 92.1%, thanks to the improved product mix of series brands and a higher proportion of revenue from direct-sales distribution channels. Tax and surcharge ratio increased 2.9ppt YoY to 16.7%, as production outpaced sales due to the seasonal adjustments to the pace of manufacturing and selling products. Selling expense ratio rose 0.5ppt YoY, while administrative expense ratio fell 1.8ppt YoY. Net margin increased 0.6ppt YoY to 47.8%. At the end of 2Q22, the company’s contract liabilities rose Rmb1.35bn QoQ to Rmb9.67bn, laying a solid foundation for 3Q22 financials. In 2Q22, cash received from sales of products rose 6% YoY and operating net cash flow dropped 70.4%, as: 1) net increase in customer deposits and interbank deposits declined at controlled subsidiary Moutai Finance Company; and 2) net increase in deposits at the central bank and interbank deposits rose.
Production volume of base liquor increased rapidly due to adjustments to the pace of production; capacity expansion underway. In 1H22, production volume of Moutai base liquor jumped 12% YoY to around 42,500t. We attribute the rapid growth of base liquor output to the firm's efforts to adjust the pace of production. Full-year production volume of base liquor will not notably increase in 2022, in our view. In 1H22, production volume of series brands increased 36% YoY to about 17,000t. Moutai continued to increase production capacity. The firm's Phase I Xishui Tongmin project completed survey, design, and invitation to tender, according to its interim financial statements for 1H22. Construction of the 30,000t/yr sauce-aroma baijiu project is proceeding smoothly. Of the 15 baijiu cellar projects, seven have been completed. The firm expects the rest to finish construction by end-2022.
Financials and valuation
We keep our earnings forecasts at Rmb63bn for 2022 and Rmb73.7bn for 2023. The stock is trading at 37x 2022e and 32x 2023e P/E. We maintain an OUTPERFORM rating and a target price of Rmb2,486. Our TP implies 50x 2022e and 42x 2023e P/E, offering 32% upside.
Risks
Recovery of the macroeconomy disappoints; COVID-19 resurgence weighs on demand.