Report Interpretation

Overview

This initiation report argues that Luzhou Laojiao is in a 2026 earnings-adjustment phase rather than facing a lasting erosion of its core franchise. Nomura expects resilient National Cellar 1573 pricing, a gradual recovery in premium-baijiu volumes and lower channel-support spending to restore earnings growth from 2027F.

Core views

Nomura expects 2026F to remain difficult as soft end-demand and ongoing channel adjustment weigh on mid- and high-end baijiu sell-through. The pressure was evident in 1H26: revenue fell 36.4% year on year to CNY10.47bn and net profit dropped 43.4% to CNY4.34bn; in 2Q26, revenue and net profit fell 65.5% and 79.5%, respectively. The report attributes the weakness chiefly to soft demand and pressure on premium-product sell-through. Mid- and high-end baijiu revenue declined 38.9% in 1H26, reducing its revenue contribution to 87.9% from 91.5% a year earlier, while gross margin fell to 85.35% from 87.09% and net margin declined 4.90 percentage points to 41.80%. The core earnings driver is the mid- and high-end portfolio—National Cellar 1573, Luzhou Laojiao Tequ and Century-old Luzhou Laojiao Jiaoling Baijiu—which Nomura expects to contribute about 87% of 2026F revenue. It forecasts segment volume to decline 32.0% year on year to 25.4kt in 2026F amid weak demand, then recover 7.5% in both 2027F and 2028F to 27.3kt and 29.3kt. National Cellar 1573 retail pricing has been broadly stable in 2026 year to date. Accordingly, the forecast 4.0% increase in 2026F segment ASP to CNY640k per tonne is primarily a favorable mix effect, as lower-priced products suffer greater volume weakness, rather than broad-based price increases. As lower-priced premium products recover, ASP is forecast to decline 2.0% in 2027F to CNY628k and remain stable in 2028F. Nomura assumes segment gross margin of about 90% throughout 2026-28F. For other baijiu, the report views mass-market demand as relatively more resilient because it is less dependent on business and gifting occasions. Even so, it forecasts 2026F volume to decline 8.0% to 44.9kt and ASP to decline 3.0% to CNY52k per tonne. Volumes are then projected to rise 5.0% and 3.0% in 2027F and 2028F, while ASP rises 2.0% in each year. Competitive and promotional pressure leads Nomura to forecast other-baijiu gross margin declining from 49% in 2026F to 47% and 46% in 2027F and 2028F. Margin recovery depends mainly on operating expenses. Nomura forecasts the selling-expense ratio to rise to 15.0% in 2026F, or about CNY2.81bn, because channel and brand investment remains sticky while revenue contracts. As inventory pressure eases and tactical promotion and channel support diminish, it expects the ratio to fall to 13.5% in 2027F and 12.0% in 2028F; selling expense is forecast at about CNY2.67bn and CNY2.54bn in those years. Blended gross margin is forecast at 84.7%, 84.4% and 84.3% in 2026-28F, while net margin recovers from 39.3% to 41.2% by 2028F. This expense normalization is why the report expects profit growth to exceed revenue growth after 2026F. Nomura forecasts revenue of CNY18.72bn, CNY19.76bn and CNY21.17bn for 2026-28F, representing growth of -27.3%, +5.6% and +7.2%. Net profit is forecast at CNY7.35bn, CNY7.93bn and CNY8.72bn, or -32.1%, +7.9% and +9.9%. These forecasts are modestly below Wind consensus: revenue estimates are 0.8%, 1.2% and 2.2% lower, and net-profit estimates 0.3%, 0.5% and 0.5% lower, reflecting more conservative assumptions on demand recovery, premium-baijiu volumes, competitive pressure and channel investment. For valuation, Nomura uses P/E because it considers baijiu companies to have mature business models and earnings profiles. It assigns a 17x 2026F P/E multiple to Luzhou Laojiao's estimated 2026F EPS of CNY5.00, deriving a CNY84.92 target price and 21.4% implied upside from CNY69.38 as of 29 September 2026. The multiple is about a 4% discount to the peer-group average of roughly 17.5x because Luzhou Laojiao remains in an earnings-adjustment phase and its 2026-28F EPS CAGR and ROE are below peer averages. Nomura believes the discount is partly offset by National Cellar 1573's resilient brand equity and pricing, plus the expected 2027F recovery in premium volumes and selling-expense efficiency.

Analysis framework

Nomura reviews the 1H26 operating deterioration, then forecasts segment volumes, ASPs, gross margins and expense ratios through 2028F. It compares its estimates with Wind consensus and values the company against baijiu peers using a 2026F P/E multiple applied to forecast EPS.

Methodology notes

• Valuation methodsP/E and PEG Valuation

  P/E-based relative valuation

  Nomura applies 17x 2026F P/E to estimated 2026F EPS of CNY5.00, setting the target price at CNY84.92. The multiple is discounted to the approximately 17.5x peer average for lower expected EPS growth and ROE.

• Industry AnalysisVolume-price decomposition

  Volume, ASP and product-mix forecasting

  The report separates volume and ASP assumptions for premium and other baijiu to explain revenue trends, including the mix-driven 2026F premium ASP increase.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Luzhou Laojiao (000568 CH)

  Primary covered company; expected to recover earnings after a 2026F adjustment.

  Strengths

  National Cellar 1573-led core brand equity and relatively resilient premium-product pricing.

  Weaknesses

  Premium-baijiu volumes and earnings remain under near-term pressure; forecast EPS CAGR and ROE are below peer averages.

  Comparison

  Assigned 17x 2026F P/E, about 4% below the peer average of roughly 17.5x.

  Risks

  Weak macro and consumption recovery, intensified competition, and slower premium-volume recovery.

• Kweichow Moutai (600519 CH)

  Valuation peer.

  Comparison

  Peer group component; rated Buy by Nomura.

• Wuliangye (000858 CH)

  Valuation peer.

  Comparison

  Peer group component; rated Neutral by Nomura.

Key data

• 1H26 revenueCNY10.47bnDown 36.4% year on year.
• 1H26 net profitCNY4.34bnDown 43.4% year on year.
• 2026F mid- and high-end baijiu volume25.4ktForecast to decline 32.0% year on year.
• 2026F/2027F/2028F revenueCNY18.72bn/CNY19.76bn/CNY21.17bnGrowth of -27.3%/+5.6%/+7.2% year on year.
• 2026F/2027F/2028F net profitCNY7.35bn/CNY7.93bn/CNY8.72bnGrowth of -32.1%/+7.9%/+9.9% year on year.
• Selling-expense ratio15.0%/13.5%/12.0%Nomura forecast for 2026F/2027F/2028F.
• Target valuation17x 2026F P/EApplied to CNY5.00 2026F EPS; peer average is about 17.5x.

Impact & implications

The report sees 2026F as the trough year for revenue and earnings. Its positive conclusion rests on a recovery in premium-baijiu volumes from 2027F and lower selling-expense intensity, while resilient 1573 brand equity and pricing support the valuation case despite a peer-multiple discount.

Risks

• A weaker-than-expected macroeconomic and household-consumption recovery could delay business-banquet, gifting and gathering demand, reducing sell-through and revenue growth.
• More intense baijiu competition could require greater promotions and channel support, lifting the selling-expense ratio and delaying margin recovery.
• A slower recovery in mid- and high-end baijiu demand or channel destocking could keep volumes below forecast and delay the revenue and earnings recovery.

What to watch

• Peak-season sell-through performance.
• Recovery in mid- and high-end baijiu volumes.
• National Cellar 1573 core-product pricing.
• Channel inventory pressure and the pace of selling-expense normalization.