2021-10-25 Pacific Securities Co., Ltd. Huang Fusheng and Cai Xueyu conducted research on Kweichow Moutai and Cai Xueyu and published the research report “Kweichow Moutai's Three Quarterly Report Review: Steady Double Digit Growth, Further Increase in Direct Sales”. This report gives Kweichow Moutai's buying rating is 2,500.00 yuan. The current stock price is 1876.66 yuan, and the expected increase is 33.22%.

　　Kweichow Moutai (600519)
　　Event: The company released its 2021 three-quarter report. The first three quarters achieved total revenue of 77.53 billion yuan (+10.7%), net profit of 37.266 billion yuan (+10.2%), net profit of 37.266 billion yuan (+10.2%), and net profit of 37.357 billion yuan (+10.2%) after deducting non-return net profit of 37.357 billion yuan (+10.2%). 2021Q3 achieved total revenue of 26.332 billion yuan (+10.0%), net profit of 12.612 billion yuan (+12.4%), net profit of 12.708 billion yuan (+13.2%) after deducting non-return net profit of 12.708 billion yuan (+13.2%). Revenue and profit achieved steady double-digit growth.
　　1. Stable high-end, rapid growth of wine series, and a further increase in the proportion of direct sales compared to the first half of the year
　　The company's main revenue for the first three quarters was 74.642 billion yuan (+11.05%), and Maotai liquor and wine series achieved revenue of 649.92 billion yuan and 9.540 billion yuan, up 8.1% and 36.3% year-on-year, and the share of wine series continued to increase. Direct sales and distribution revenue was 146.85 billion yuan and 59.847 billion yuan, up 74.1% and 1.9% year-on-year. Direct sales channels accounted for 22.6% of Maotai Liquor's sales (+8.6%). Channel reform progressed smoothly, and the direct sales ratio continued to rise. Domestic and foreign revenue was 723.87 billion yuan or 2.145 billion yuan, up 11.2% and 6.1% year on year. In the first three quarters, 62 new dealers were added (mainly series wine dealers), 13 dealers were withdrawn (mainly Maotai liquor dealers), and there were 2,095 domestic dealers at the end of the third quarter.
　　2021Q3, the company's revenue was 25.555 billion yuan (+9.86%). Maotai liquor and wine series achieved revenue of 220.43 billion yuan and 3.479 billion yuan respectively, up 5.5% and 48.1% year-on-year, benefiting from the expansion of the soy wine drinking atmosphere, and the series recorded the fastest quarterly growth in recent years. Direct sales and distribution achieved revenue of 51.81 billion yuan and 20.341 billion yuan respectively, up 57.9% and 1.9% year-on-year. Direct sales channels accounted for 23.5% (+7.8%) of Maotai Liquor's sales, a further increase from 22.13% in the first half of the year. Domestic and foreign revenues were 245.77 million yuan and 945 million yuan respectively, up 10.1% and 2.6% year on year. No new dealers were added in Q3, and 1 company withdrew.
　　The company's sales revenue for the third quarter was 29.160 billion yuan (+17.10%), and net operating cash flow was 15.033 billion yuan (+20.36%). Contract liabilities and other current liabilities at the end of the quarter were 10.263 billion yuan, a slight decrease of 105 million yuan from the previous month and 297 million yuan from the previous year. Accounts receivable and notes receivable were $540 million, a year-on-year decrease of $692 million and a year-on-year decrease of $1,396 million. The quality of operations is good.
　　2. The structure slightly affects the gross profit margin, the decline in the tax ratio level, and the increase in the net interest rate
　　In the first three quarters, the company's gross margin was 91.2% (-0.1pct), net profit margin was 48.4% (-0.3pct), company sales tax rate 13.8% (+0.2ct), sales expense rate 2.5% (-0.1pct), management expense rate 7.0% (+0.5pct), financial expenses rate -0.8% (-0.6pct), and income tax rate 25.1% (+0.01pct). Q3 gross margin is 90.8% (-0.2pct), net profit margin is 47.9% (+1.0pct), company sales tax rate 13.9% (-2.1pct), sales expense rate 2.4% (-0.2pct), management expense rate 7.4% (+0.7pct), financial expense ratio -0.9% (-0.6pct), income tax rate 24.9% (-0.1pct), income tax rate 24.9% (-0.1pct), and a sharp increase in Q3 wine's share affects gross profit margin, and the decline in tax ratio has led to an increase in net interest rate.
　　Profit Forecast and Valuation:
　　At the shareholders' meeting in September this year, the new chairman, Ding Xiongjun, stated that reforms will be carried out in the direction of high-quality development. The reforms include the reform of Maotai's marketing system and price system, and stated that the reform direction of the price system should be market-based, based on more long-term considerations, so that Maotai liquor can return to its commercial attributes.
　　During the Mid-Autumn Festival and National Day this year, Maotai increased its volume and curbed price speculation to a large extent through precise marketing, precise sales, precise control, repeated purchases of short products, and pilot bottling and consumption. In late October of this year, the “open box sale” of Maotai liquor was also gradually abolished. Looking at the medium to long term, future sales growth will mainly be invested in direct sales channels such as direct sales, KA direct supply, and e-commerce channels. The direct sales ratio and average tonnage price of alcohol will rise to a higher level. The volume and price of Maotai liquor will rise sharply in the next 5 years, continuing to strongly support the continued growth in revenue and profit. The revenue growth rates for 2021-2023 are 12%, 18%, and 13%, respectively, and the net profit growth rates are 14%, 25%, and 18% respectively. The corresponding EPS is 43.12, 53.90, and 63.61 yuan respectively, maintaining the target price of 2,500 yuan and the “buy” rating.
　　Risk warning: If future ex-factory prices increase or comprehensive sales prices fall short of expectations, profit forecasts and EPS under an optimistic scenario may fall short of expectations.

The stock has been rated by 41 institutions in the last 90 days, with 34 buying ratings and 7 additional ratings; the average institutional target price for the past 90 days is 2322.58; according to the Securities Star valuation analysis tool, Kweichow Moutai (600519) has a good company rating of 4.5 stars, a good price rating of 2.5 stars, and an overall valuation rating of 3.5 stars.