Kweichow Moutai:Q117reported sales growth continues accelerating

Q: How did the results compare vs expectations?

    A: Moutai reported its sales/net profit will grow 24%/16% YoY in Q117, in line withUBS-Se. It continues to suffer the hiked consumption tax base in Q117 (refer to Will anincrease in consumption tax base continue to be a concern in 2017-18) and we gaugea 7ppt GPM contraction YoY (assume the base is the statutory upper limit of 70%).

    Q: What were the most noteworthy areas in the results?

    A: We expect Moutai liquor's actual delivery volume to increase 10-15% YoY in Q117.

    Its accelerated top-line growth at around 25% YoY in the past 2 quarters reinforces ourview that Moutai's high unearned revenue should start to be gradually reflected inhigher sales growth. Its net margin will narrow by only 3ppt YoY in Q117, implying abig decline in opex ratio (better operating leverage).

    Q: Has the company's outlook/guidance changed?

    A: No.Q: How would we expect investors to react?A: We think investors could react positively to Moutai's better-than-market-expectedYoY sales growth.