Kweichow Moutai:Distributor Meeting emphasizes continued transition and reform;CL-Buy
News
Kweichow Moutai held its annual distributor meeting in Renhuai on Dec20-21, according to media reports (Jiuyejia). We highlight the key points.
Analysis
(1) High-end brand: As of end Nov, high-end brand Moutai has realized7.65% yoy sales volume growth, in line with our full year 8% estimate. Forthe first 11months, Moutai Group (parent company) revenue/profit havegrown 4%/2% yoy. As the listco accounts for 75%+ of Moutai Group’srevenue, we think the listco should also have realized single digit growth interms of revenue and profit (our full year revenue/profit estimates are+6%/7% yoy). Management identified certain industry trends, includingmainstream consumer shifting to millennials who have lower loyalty toBaijiu while consumption behavior is concentrating on top brands. TheChairman mentioned three key measures to face the challenge of marketchanges, including linking compensation of all sales persons to salesvolume; deeper penetration into low tier markets such as counties andtowns, and development of an O2O e-commerce platform.
(2) Series brands: Management mentioned that YTD series product hasrealized sales of Rmb1.3bn and volume of 7500tons, which is higher thanour annual forecast of Rmb842mn/7150tons, with main contributions fromYingbin and Prince. New products including Wangmao, Huatao andGuizhou Daqu are still at the introductory/cultivation stage, while Hanjiang,Renjiu are still facing difficulties. Management is still not satisfied withseries brands performance and aims for Rmb2bn sales in 2016with severalkey measures: cuts in product prices; increase in sales volume to15000tons (85%+ yoy), cost controls and higher marketing expense.
Implications
We think the overall messages from the distributor meeting are in line withour expectations. Management is actively leading the further transition ofMoutai to adapt to rapid market changes post the recent anti-corruptioncampaign. We maintain our Buy rating (CL) and estimates.INVESTMENT LIST MEMBERSHIP
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