Here is the translation of the provided text into English: If Kweichow Moutai's annual sales growth can stabilize at around 6%-7% in the coming years, then the current stock price is severely undervalued.
Even under the most pessimistic assumption that Moutai's actual consumption returns to the level of 2014-2016 when the retail price was at the bottom, with no increase in sales, but all net profits are distributed as dividends without expansion, it is still a good choice as a long-term investment dividend stock.
Recently, the closing price of Kweichow Moutai (600519.SH) has fallen below 1,300 yuan, with a drop of about 25% in the last four months compared to May, and a drop of about 49% from the highest price of 2,489 yuan (adjusted for rights) at the beginning of 2021.
The decline in stock prices from 2021 to 2023 can be attributed to the lack of "ammunition" for public equity funds, which faced net redemptions, and Moutai's stock price just followed the market down, with a drop even smaller than the average of public equity heavy stocks.
Advertisement
So, what is the reason for the recent decline in Moutai?
Has there been a significant change in the company's fundamentals?
The main reason for the recent fluctuation is the decline in the prosperity of the liquor industry.
Some market researchers believe that the actual sales volume of liquor has decreased by more than 10% year-on-year, and as a result, the liquor index and liquor LOF in A-shares have fallen by about 30% since May 2024, and some liquor companies' stock prices have even fallen by more than 40%.
This is obviously not an individual problem, but an overall challenge faced by the industry.
One of the reasons for the poor liquor sales recently is that distributors dare not hoard goods, which is related to the disappearance of the expectation of liquor price increases.
In the past few years, several major domestic liquor brands have been raising prices.
However, recently the liquor market price has not risen but fallen, for example, the market retail price of Moutai Feitian liquor in the original box and loose bottles has fallen from over 3,000 yuan and more than 2,800 yuan at the peak of 2023 to more than 2,500 yuan and more than 2,300 yuan.
Many people in the market previously believed that Moutai Feitian liquor has financial attributes, and the market retail price has increased significantly in the past few years, even comparing Moutai to hard currency, and collecting it is profitable.
Now this belief is being challenged.
Generally speaking, during the down period of liquor prices, distributors dare not hoard goods, which affects sales, further suppresses prices, affects confidence in the future, and forms a negative feedback loop, continuously strengthening, and ultimately putting pressure on liquor stock prices.
Currently, Kweichow Moutai's price-to-earnings ratio is about 19 times, and the price-to-book ratio is about 7 times.
The company has promised a dividend payout ratio of not less than 75% in the next three years, and a conservative forecast for net profit in 2024 can exceed 82 billion yuan, with dividends exceeding 61.5 billion yuan, which is about 4.9 yuan per share, and the dividend yield is 3.87%.
If Kweichow Moutai's performance can remain stable in the next three to five years, let alone the annual net profit growth rate reaching 19% in 2022 and 2023, or 15.9% in the 2024 semi-annual report, as long as it can reach the range of 1%-1.4% in 2014 and 2015, it has long-term investment value.
After all, the company's return on equity in 2023 was 34%, and the asset-liability ratio was only 18%; the cash flow is very good, and the net cash flow from operating activities can reach about 90% of the net profit; the company's cash or quasi-cash assets can account for about 60% of total assets.
Consider increasing buybacks or dividends.
An extreme assumption can be made: the company uses buybacks or dividends to disperse cash equivalent to half of total assets at one time, leaving only one-sixth of the cash, and the company's daily operations will not be affected at all.
At that time, the company's market value is more than 1.4 trillion yuan, and the price-to-earnings ratio can be reduced to just over 17 times, and the normal annual dividend yield can be increased to 4.3% - companies like Qualcomm and McDonald's in the US stock market have continuously increased their stock prices through similar operations.
Kweichow Moutai has a large amount of funds disbursed.
These funds are deposits placed by the listed company's holding subsidiary, Kweichow Moutai Group Financial Co., Ltd., with the same industry (banking industry), reaching 105.6 billion yuan at the end of 2023 and 115.3 billion yuan at the end of June 2024.
The cash on hand of the listed company during the same period was as high as 69.1 billion yuan and 56.8 billion yuan.
The profit and loss statement for the same period shows that the company's interest income was only 1.942 billion yuan and 896 million yuan.
Converted into an annual interest rate, the yield on disbursed funds is estimated to be only slightly over 1%.
Instead of this, the management might consider using it for buybacks and dividends.
Considering the changes in population structure, business and consumption habits, the long-term sales volume of liquor in the Chinese market will obviously shrink, and coupled with the high-end positioning of Moutai Feitian liquor, similar to luxury goods, Moutai Company should not over-expand production.
Because rarity is precious, as a luxury good, supply should not exceed demand, and there must be a certain shortage in market supply to maintain the hunger of dealers and consumers.
If production is not expanded, Moutai's cash on hand only needs to be more than 10 billion yuan to be fully sufficient.
Because the company only spent 11 billion yuan in cash for the purchase of goods and acceptance of labor services in the entire year of 2023.
Even if production is expanded, the company's construction projects in more than a year are basically between 2 billion and 3 billion yuan, and the total investment in the "14th Five-Year Plan" technical transformation construction project only needs 15.5 billion yuan.
In other words, there is too much cash on hand, which can be fully used for buybacks and dividends.
The annual sales volume of Chinese liquor is about 6 million tons, and the actual consumption volume may be about 5 million tons.
As a high-end liquor, Moutai's market share is about 1%.
The current construction capacity of Moutai liquor is 19,800 tons/year, and it is planned to start production on the Double Ninth Festival in 2024, and will be put on the market in batches after five years.
In the first half of 2024, the output of Maotai liquor excluding series liquor (low-end liquor) was about 39,100 tons, with a designed annual production capacity of about 45,000 tons.
Because the actual production capacity exceeds the designed production capacity, the actual annual production capacity is about 57,000 tons.
According to this calculation, the construction capacity is equivalent to 35% of the current actual production capacity.
For luxury goods, this speed of production expansion is too fast.
In five years, whether the actual annual consumption demand for Maotai liquor in the country can increase by 35%?
There is this expansion, probably because the price difference between Maotai liquor's ex-factory price and retail market price was too large two or three years ago, which gave people full confidence.
But if the actual opening volume of Moutai is limited, and a large amount of products are hoarded in the channels, once the market reverses, the difficulties faced by Moutai in 2014-2015 may be repeated.
At that time, the retail price of Moutai liquor fell from about 2,000 yuan to about 800-900 yuan, and the ex-factory price was 819 yuan.
In 2014, Moutai's revenue was only 31.574 billion yuan, with a year-on-year increase of only 2.11%.
It was not until the second half of 2016 that the market retail price returned to above 1,000 yuan.
In addition, the anti-counterfeiting function of Moutai Feitian liquor is not strong enough.
If the listed company can achieve high-tech anti-counterfeiting, then the real Moutai liquor can accept more market share, and the opening volume and consumer retail purchase volume can increase significantly, which may solve the problem of digesting the construction capacity.
Sales do not have to be pessimistic.
In November 2023, Moutai raised the ex-factory price, and the current retail price of box-installed and loose-installed is calculated at 2,500 yuan and 2,300 yuan, respectively.
The first-level wholesalers who directly take goods at the ex-factory price are still very profitable and can deliver to the second-level dealers at 1,600-2,000 yuan.
The suggested retail price of Moutai liquor is 1,499 yuan, and the company's direct sales are also at this price.
At present, the ex-factory price of 1,163 yuan and the suggested retail price of 1,499 yuan are not too problematic, and future performance depends on whether sales can be stable and rising.
In the first half of 2024, the revenue of Maotai liquor series accounted for 16.09% of the listed company's liquor revenue, and nearly 84% were high-end Maotai such as Feitian liquor, with a profit share of nearly 90%, so the following analysis is also only for Feitian liquor.
Let's boldly assume that the retail market price falls to 1,500 yuan for loose-installed and 1,700 yuan for box-installed, that is, a 30% drop from the current market price.
At that time, even if most second-level wholesalers dare not take goods and hoard goods, most first-level wholesalers will still take goods, because there is still a difference of more than 330 yuan, and retail can also make money.
Moreover, if they do not take goods, the qualification of the first-level wholesaler may be lost, and in the long run, this is a very valuable "license".
In other words, at that time, it may still not be seen that the delivery of Maotai Feitian liquor is not smooth, but the channel sales may slow down.
The product is hoarded in the hands of second-level and third-level channel merchants, and the listed company's sales volume will not change much.
The market is worried about the actual consumption volume.
In the first half of 2024, Kweichow Moutai's total revenue was 83.45 billion yuan, a year-on-year increase of 17.56%.
Among them, direct sales revenue was 33.728 billion yuan, a year-on-year increase of 7.3%, accounting for 41.2% of total revenue; wholesale accounted for nearly 59%, with a year-on-year increase of 26.5%.
After deducting the factor of the increase in ex-factory price, the actual sales volume increase should also be around 6%-7%.
The author believes that the growth rate of direct sales revenue may be closer to the actual sales volume growth rate of the retail market, because the first-level wholesalers who get the goods, especially the series liquor sold in combination, may be hoarded in the channels.
Judging from the trend of the company's semi-annual report, the revenue in 2023 was 150.6 billion yuan, and it is expected to grow to more than 165 billion yuan in 2024.
If the annual sales volume growth rate can be stable at around 6%-7% in the next few years, then the current company's stock price is severely undervalued.
Unfortunately, some investors seem not to believe it.
As mentioned earlier, market research information shows that the actual sales volume of high-end liquor during the Mid-Autumn Festival decreased by more than 10% year-on-year.
The actual opening rate of Maotai liquor is not clear, and the annual sales volume of Maotai liquor that has not been opened is generally turned into two collections: consumers (individuals, enterprises), channel dealers.
The former's collection is relatively healthy; the latter's collection is pushing the wave when the trend of the liquor market is upward and the price is good, and currently the trend is downward and the outlook is uncertain, which may lead to a continuous spiral of price reduction and selling off.If Moutai sells for 1499 yuan, and goes entirely through direct sales without wholesale, can the Chinese market absorb its annual production?
There is no particularly accurate answer to this question.
Moutai Company also claims that it will not give up the wholesale channels of dealers.
Even with the most pessimistic assumption that the real consumption volume of Moutai returns to the level of retail prices at the bottom of the range in 2014-2016, it is about 35-45 million bottles per year.
At that time, it should have been the real consumption of the annual shipment, and even the historical inventory of various channels, which led to the continuous price increase after the second half of 2016.
Considering the bottle opening rate of 50-70% (consumers collect 30-50%), and the substitution of counterfeit wine due to the ease of purchasing genuine wine through direct sales, the shipment volume of Moutai Feitian wine of the listed company should be able to reach about 80 million bottles, which is more than 20% less than the current volume.
At that time, the revenue from Feitian, excluding series wine, is about 120 billion yuan.
Assuming that all these sales go through direct sales, the company's annual net profit would be about 70 billion yuan, and the price-to-earnings ratio would be about 23 times.
Even if there is no increase in sales volume afterwards, if all net profits are distributed and no further expansion is made, the dividend yield is as high as 4.3%.
As a long-term investment dividend stock, it is still a good choice.