Kweichow Moutai:Increasing ex-factory supply;sales growth to speed up in 3Q17

To increase ex-factory volume from August 15

    Kweichow Moutai will supply more than 4500tons of mainstream "FeitianMoutai" between 15August to 30September, according to the media reportsfrom China Securities Daily. This implies 100tons/day during the peak season.Meanwhile, the company has delivered 150tons on August 15according to thenews. Through increasing supply, Moutai management aims to ease down thesupply shortage in retail end during the peak consumption seasons (Mid-AutumnFestival and National Holidays). It also target to control the retail price belowRmb1299/bottle.

    This implies over 40% volume growth in 3Q17

    This implies over 40% volume growth in 3Q17for main stream products, if itdelivers more than 100tons per day from August 15. To recap, Moutai's dailyvolume was 55tons in 3Q16, and we estimate the daily volume was 60-70tonsbefore August 15. In addition, we expect its average selling price for premiumMoutai continue to increase driven by increasing portion of super premiumcustomized Moutai. This is higher than 36% yoy sales growth in 1H17andconsensus estimates at 20% yoy sales growth for 2H17.

    Channel restocking to continue; maintaining Buy

    In next 6month, Moutai will experience two traditional peak consumptionseasons - the mid-Autumn festival & National holiday in October and Chinese NewYear in Feb 2018. We expect supply shortage to continue, driven by increasingretail demand and distributor's channel stocking up. Our recent channel checkin Shanghai and Beijing also indicates that most retail stores are running out ofinventories. (For Moutai's re-stocking and de-stocking cycle history, please referto report "The restocking cycle is just beginning; reiterating Buy" ) . Within theshortage environment, we expect Moutai to increase its sales volume and reportaccelerating sales growth. We maintain Buy.