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Author: Xiao Li Fei Dao, Editor: Xiao Shi Mei

Recently, Kweichow Moutai announced its performance in the first half of 2024, which exceeded market expectations. At the same time, Moutai also disclosed its dividend plan for the next three years, striving to become a benchmark for A-share market value management. Coupled with its excellent business model, its long-term investment value should not be underestimated.

【High-quality growth against the trend】

In the first half of 2024, Moutai's operating income was 81.931 billion yuan, a year-on-year increase of 17.76%, and its net profit attributable to the parent company was 41.696 billion yuan, a year-on-year increase of 15.88%. In the first half of the year, the liquor industry was generally under pressure, and it was not easy for Moutai, with a scale of hundreds of billions, to exceed the established growth target against the trend.

In terms of products, Moutai series of liquors performed outstandingly, with a year-on-year growth of more than 30%, accounting for 16% of revenue, proving that Moutai has gradually formed a dual-wheel drive structure. In terms of channels, direct sales channels accounted for 41%, better balancing the interests of manufacturers and distributors.

In the first half of 2024, Kweichow Moutai's accounts receivable (contract liabilities and other current liabilities) were 11.233 billion yuan, an increase of 36.30% from the first half of last year and 5.29% from the first quarter.

This strong performance shows that dealers have full confidence in Moutai and are not affected by the fluctuations in wholesale prices in the first half of the year. Most importantly, Moutai has disproven some of the so-called concerns of the market with its stable and high growth performance.

In fact, Moutai's wholesale price performance is far stronger than that of its peers. Even if the wholesale price fluctuates due to short-term supply and demand factors, there is still a lot of buffer space from the ex-factory price of 1,169 yuan, and it will not substantially affect the performance.

Furthermore, with the arrival of the Mid-Autumn Festival and National Day sales peak season, the wholesale price of Feitian Moutai continued to rise, with the price of an original box returning to above 2,700 yuan and the price of a loose bottle returning to above 2,400 yuan.

【Use cash to boost confidence】

Although Moutai's performance has been growing steadily, its stock price has recently been affected by the weakness of the A-share market and poor investor confidence.

Moutai has taken concrete actions to boost investor confidence. On the day of the semi-annual report disclosure, Moutai issued an announcement proposing that the cash dividend ratio in the next three years should not be less than 75%, with dividends paid twice a year. In the eyes of mainstream institutions, this plan is full of sincerity.

Since its listing in 2001, Moutai has distributed cash dividends every year, with a cumulative amount of 271.4 billion yuan, 123 times the amount of funds raised during its listing. Such dividend performance is rare in the A-share market, and it also proves that Moutai's profitability has been improving in the long term and has a basis for continuous dividends.

▲Maotai's dividend performance over the years, source: Wind

Since 2015, Moutai has significantly increased its dividend ratio to more than 50% and has maintained it to this day. In 2022 and 2023, Moutai also raised its dividend ratio through special dividends, reaching 95.8% and 84% respectively. Now, Moutai plans to directly increase the dividend ratio to more than 75%, which is equivalent to normalizing the special dividends of the past two years, dispelling market concerns.

Moutai has provided a stable and predictable high dividend plan, which will attract more medium- and long-term investors in the future.

According to a research report released by Goldman Sachs, assuming that Kweichow Moutai's dividend rate is 75%, its dividend rate is expected to be 3.6% and 4.1% in 2024-2025 respectively. In fact, Moutai's latest dividend rate has reached 3.48%, a significant increase of 2.88 percentage points from the lowest level of 0.6% in 2021. Compared with the leading A-share market capitalization, it is also not inferior.

Of course, Moutai’s dividend planning itself is a favorable proof that the company’s governance level has been taken to a higher level, and it is also a powerful weapon for market value management.

In July this year, Moutai proposed that market value management should strive to become a benchmark in the A-share market. From a realistic perspective, Moutai does have the confidence.

First of all, the most important part of market value management is to maintain good growth in performance and achieve continuous expansion of value. In this regard, Moutai is very certain.

Secondly, Moutai has continued to take actions to increase dividends, increase holdings and repurchase shares. When Moutai's stock price fell irrationally from 2022 to 2023, the controlling shareholder Moutai Group announced several times to increase holdings, convey market confidence and protect the interests of small and medium shareholders.

Moutai has also made some progress in market communication. In July 2024, Moutai management led a team to Beijing to hold an investor exchange meeting to analyze Moutai's development situation and planning and respond to investors' concerns. Moutai also emphasized that market value management not only focuses on dividends, but also strives to establish a normalized communication mechanism with investors.

In general, expanding the core business and creating value is the first priority of market value management, while also taking into account both value operation (including corporate governance, investor relations, etc.) and value realization (including repurchases, increased holdings, dividends, etc.).

【Securely the top holding stock】

Over the past few years, against the backdrop of a turbulent market environment and occasional fluctuations in its own operations, Moutai has always been the largest holding of domestic and foreign institutions.

Foreign capital has always been heavily invested in high-end liquors, led by Kweichow Moutai, and has expressed its attitude with real money. As of August 12, according to financial terminal data, northbound funds' latest holdings in liquor were 160.6 billion yuan, which has always been ranked first among the 31 industries of Shenwan. Among them, the market value of Moutai's holdings was 118.3 billion yuan, accounting for 73.7% of the liquor industry, and it has always been the largest holding of A-shares by northbound funds.

In terms of domestic public funds, as of the end of the first quarter of 2024, Moutai was heavily held by 1,519 funds, with a holding value of up to 147.8 billion yuan, also ranking first.

▲Source: Research Value

In fact, Moutai entered the top ten holdings of public funds as early as the first quarter of 2005, and has since become a regular in the top ten. Since 2019, Moutai has been the number one holding.

The reason why both domestic and foreign capital have heavy holdings in Moutai stems from their recognition of the good business of liquor and their insight into its excellent business model.

The purpose of business is to make money. A good business model can make money continuously, that is, achieve continuous growth in free cash flow (free cash flow is operating cash flow minus capital expenditures).

Liquor requires almost no capital expenditure, has little debt interest, and is paid before goods are delivered. The profits earned are basically equivalent to free cash flow, and the capital value can continue to expand. This is the underlying logic that allows liquor to cross cycles. However, after making profits, most industries need to make a lot of capital expenditures to maintain the existing business base. The free cash flow is not much, and the capital value cannot continue to expand. From this perspective, liquor is the track with the best business model in the A-share market.

In addition, high-end liquor is the best segment in the food and beverage industry, with high barriers to competition, strong social demand, price bandwidth, convenient transportation, large sales radius, and easy expansion of free cash flow. In the high-end liquor market, Moutai has the strongest brand barriers and its profitability is second to none.

However, due to various factors, as of August 13, Moutai's PE valuation was only 22.22 times. From an industry comparison, it is only slightly higher than the 19.11 times of the CSI Liquor Index. Compared with the industry average, Moutai has better performance growth and a better business model, so it is reasonable to have a higher premium in valuation.

Compared with itself, Moutai's valuation is at an extremely low level since 2016, and is significantly undervalued by the market. Industry opinions point out that given Moutai's excellent business model and strong core competitiveness in the liquor industry, the capital market will not underestimate it for a long time, and it is expected to recover in the future.

▲ Kweichow Moutai's PE trend chart over the years, source: Wind

Disclaimer

The content of this article related to listed companies is the author’s personal analysis and judgment based on the information disclosed by listed companies in accordance with their legal obligations (including but not limited to interim announcements, regular reports and official interactive platforms, etc.); the information or opinions in the article do not constitute any investment or other business advice, and Market Value Observation shall not bear any responsibility for any actions arising from the adoption of this article.