Since the second quarter, the baijiu industry has entered the traditional off-season, and terminal demand has significantly weakened. The Matthew effect in the industry continues to show, and leading liquor companies with strong brand strength have greater certainty in their performance.
The Guangfa Securities research report pointed out that since the second quarter, the baijiu industry has entered the traditional off-season, and terminal demand has significantly weakened. The Matthew effect in the industry continues to show, and leading liquor companies with strong brand strength have greater certainty in their performance. In terms of price bands, high-end liquor achieved a year-on-year increase in revenue of 15.2% in the first half of 2024, leading among all price bands. With the arrival of September, the baijiu industry is transitioning from the traditional off-season to the Mid-Autumn Festival and National Day peak season. With the recovery of demand, mainstream product prices are expected to stabilize. Since 2021, the valuation of the baijiu sector has continued to decline, and it is currently at a historically low level. Leading liquor companies have increased dividends and from the perspective of PB-ROE analysis, they are already undervalued.
On the income side, high-end liquor companies have achieved stable performance, while other liquor companies have shown obvious differentiation. In the high-end liquor segment, three companies achieved a total revenue of 151 billion yuan in the first half of 2024, a year-on-year increase of 15.2%. In the second quarter of 2024, the total revenue reached 60.5 billion yuan, a year-on-year increase of 14.2%, ranking first among all price segments and demonstrating the continued certainty of performance for leading liquor companies. In the second-tier segment, overall performance is mixed, with Fenjiu still leading and Shede experiencing negative growth in revenue in the second quarter. In the real estate liquor segment, although performance in the second quarter slowed compared to the first quarter, Gujinggong Liquor, Jingshiyuan, and Yingjia Distillery all saw revenue growth of over 20% in the first half of the year.
On the profit side, overall expenses have contracted, but there are differences among different price bands. Gross margin: The average gross margins for the baijiu sector in the first half of 2024 and the second quarter of 2024 were 81.2% and 81.1%, respectively, with year-on-year increases of 0.7 and 1.2 percentage points, indicating overall profitability growth in the baijiu sector. In the high-end liquor sector, the gross margins for Moutai and Luzhou Laojiao remained largely unchanged year-on-year, while Wuliangye saw year-on-year increases of 0.6 and 1.7 percentage points in the first half of 2024 and the second quarter of 2024, respectively. Among the second-tier liquors, most companies saw a decline in gross margin in the second quarter. In the real estate liquor segment, most leading companies are still upgrading their products internally, leading to an increase in gross margin year-on-year. Expense ratio: In the second quarter of 2024, the operating tax rates for some leading liquor companies increased, with Guizhou Moutai and Luzhou Laojiao seeing year-on-year increases of 1.3 and 1.2 percentage points, which is the reason why their net profit margins came under pressure in the second quarter. As for the sales expense ratio, most liquor companies saw an increase in the second quarter, mainly due to the shift from active sales to a slower period. Each liquor company invested in sales expenses to boost the speed of product sales at the end market.
Cash flow and advance receipts: Brand momentum is evident, and leading companies have better collection of payments. Sales collection: In the second quarter of 2024, there were differences in sales collections among the three liquor companies, with Guizhou Moutai and Wuliangye seeing year-on-year increases of 22.6% and 93.4% respectively, with Wuliangye performing well. Advance receipts (contract liabilities): Among high-end liquors, Wuliangye's advance receipts in the second quarter of 2024 increased by 61.6% compared to the previous quarter. In the second-tier segment, Fenjiu's advance receipts increased by 2.5% in the second quarter, while Shede Spirits saw a significant decline (down 30.9% quarter-on-quarter). In addition, all real estate liquor companies saw a decline, and the enthusiasm of dealers to make payments was noticeably weaker than in the first quarter of 2024.
Investment recommendations: Since 2021, the valuation of the baijiu sector has continued to decline and is currently at a historically low level. Leading liquor companies have increased dividends. From the perspective of PB-ROE analysis, these companies are undervalued. In terms of performance, there is an increasing divergence in the second quarter report. We await a market reevaluation after inventory clearance. Our top recommendations are Guizhou Moutai (600519.SH), Wuliangye (000858.SZ), Luzhou Laojiao (000568.SZ), Shanxi Fenjiu (600809.SH), Gujinggong Liquor (000596.SZ), Jingshiyuan (603369.SH), and Yingjia Distillery (603198.SH).
Risk warning: The pace of economic recovery needs to be observed, as consumption may not recover as expected. There are also concerns about food safety.
