On September 12th, baijiu stocks suffered a significant blow, with the overall decline ranking second in the entire market.

Among them, Kweichow Moutai (600519.SH) saw a substantial drop of 3.26%, reaching a new low since December 2022, with a cumulative decline of over 21% for the year; Wuliangye (000858.SZ) fell by 2.28%, Shanxi Fenjiu (600809.SH) plummeted by 3.60%, Luzhou Laojiao also declined by 3.14%, and Yanshi Shares suffered a limit-down.

Additionally, Zhenjiu Lijiu (06979.HK), listed in Hong Kong, also fell by more than 4%, setting a new low since its listing.

This year, the baijiu industry has frequently been the subject of "ghost stories," including the downward trend of Feitian Moutai's batch price causing scalpers to flee, and several leading baijiu companies being downgraded by UBS, testing investors' confidence.

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From recent news, the traditional Mid-Autumn Festival sales season is approaching, but media reports suggest that liquor merchants in many provinces and cities in China have reported "not very good" sales, with this year being the "weakest in recent years," showing a characteristic of a peak season that is not actually peak.

In response to this news, a person related to Luzhou Laojiao stated that the company is currently in normal stock preparation, and specific sales volumes will only be available after the Mid-Autumn Festival.

Moreover, data from the "Today's Liquor Price" quoting platform shows that on September 12th, the wholesale price for the 2024 Feitian Moutai original box has fallen to 2550 yuan/bottle, and the loose bottle wholesale price has fallen to 2380 yuan/bottle.

As a leader in the baijiu industry, Kweichow Moutai and its core product series, Feitian, are industry benchmarks, and their wholesale prices must at least be stable to open up price increase space for other liquor companies, which is therefore very important.

The continuous decline in the price of the Feitian series will also have a negative impact on investors' confidence.

Looking at a longer cycle, the baijiu industry as a whole is still in an adjustment period this year, which has led to a divergence in the performance of baijiu stocks in the first half of the year, with a clear pressure on performance in the second quarter, and these are also one of the reasons for the sluggish performance of the baijiu sector this year.

Data shows that in the first half of the year, the performance of Kweichow Moutai, Wuliangye, Luzhou Laojiao, and Shanxi Fenjiu was able to maintain steady growth, but Shede Jiuye, Jiugui Jiu, and Jinsui Jiu saw a significant decline in revenue and profits in the first half of the year, with Shede Jiuye's net profit attributable to the parent company falling by 35.75% to 590 million yuan during the period.

Looking at the performance in the second quarter, the net profit attributable to the parent company of some liquor companies such as Luzhou Laojiao, Shanxi Fenjiu, Shede Jiuye, and Yanghe Shares has grown significantly slower than the overall growth in the first half of the year, indicating pressure on the profit side in the second quarter.

Among them, in the second quarter, Shanxi Fenjiu achieved revenue of 7.408 billion yuan, a year-on-year increase of 17.06%; it achieved a net profit attributable to the parent company of 2.147 billion yuan, a year-on-year increase of 10.23%, and the growth rate is lower than the revenue side.

In addition, in the second quarter, Shanxi Fenjiu's gross margin in the second quarter fell by 2.7 percentage points year-on-year to 75.1%, mainly due to the downward shift in product structure, and the gross margin pressure led to a year-on-year decline of 1.8 percentage points in the net profit margin attributable to the parent company to 29%.

In general, the divergence in mid-term performance and the pressure on performance in the second quarter both indicate that the overall demand for the baijiu industry is not so strong and is in a relatively weak state.

Wanlian Securities also stated that since the Spring Festival this year, the baijiu industry has faced a situation where the peak season is not peak, and the off-season is even weaker.

However, despite the decline in stock prices, some baijiu stocks have still been optimistically regarded by institutions.

Researchers from China Merchants Securities pointed out that from the basic point of view, in recent years, the Mid-Autumn Festival peak season effect has become less and less obvious, and under this trend, it is difficult to exceed the expected demand, but this year the supply side has already shown differentiation, with high-end and sub-high-end investments being more cautious than last year, and local liquor policy investment is relatively active.

Looking at the recent continuous adjustment of the capital market, a pessimistic expectation has been formed, and if the Double Festival can withstand the pressure test (stable landing of the price system), it is expected to form a reversal of stock prices.

Donghai Securities stated that the valuation of the baijiu sector is close to the low point at the end of 2018, and the dividend rate of leading liquor companies has an upward trend.

The competition in the baijiu industry is intensifying, and the differentiation in sales driven by different prices continues, with the market share of leading liquor companies continuously increasing and the performance certainty being relatively strong.

Against the backdrop of the industry still facing significant pressure, it is recommended to focus on high-end liquor and regional leaders.

Researchers from Guohai Securities believe that under the background of overall macro demand pressure, baijiu companies without a base market, weak brand and channel capabilities may see a decline in performance, while those with solid operations and a base market will maintain a steady growth trend, and it is expected that the differentiation of the baijiu sector will become more obvious in the future.

In addition, it is believed that with the continuous introduction of economic policies, the market confidence will rebound, and the valuation of the baijiu sector will be repaired.