Second-Quarter Pressure Does Not Alter the Long-Term Reform Thesis; Maintain Buy
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Second-Quarter Pressure Does Not Alter the Long-Term Reform Thesis; Maintain Buy
Kweichow Moutai's second-quarter results fell short of expectations, but with a higher share of direct sales and i Moutai, and stabilized wholesale prices for Feitian Moutai, Deutsche Bank believes market-oriented reforms are likely to gradually yield results.
- Second-quarter 2026 revenue was RMB37.6bn, down 5% year on year; net profit attributable to shareholders was RMB17.2bn, down 7% year on year.
- Moutai liquor sales declined 1% year on year to RMB31.7bn, while other series liquor sales fell 25% to RMB5.1bn.
- Direct-sales revenue grew 34% year on year and accounted for 61% of core operating revenue; distributor-channel revenue declined 35%.
- i Moutai sales grew 283% year on year and accounted for 51% of core operating revenue, reflecting a shift in channels toward direct sales and digital platforms.
- Based on second-quarter performance, average earnings forecasts for 2026–2028 were lowered by 3%, and the target price was reduced from RMB1,660.00 to RMB1,578.40.
Report interpretation
Overview
Deutsche Bank noted that Kweichow Moutai's off-season performance in the second quarter of 2026 fell short of market expectations, with revenue and profit declining 5% and 7% year on year, respectively. The bank primarily attributes the weak performance to short-term volatility during the initial execution of market-oriented pricing and channel reforms, rather than deterioration in long-term competitiveness.
Core views
The core view is that the reforms will gradually improve the pricing system and channel structure. Direct sales and i Moutai sales grew rapidly, but a contraction in distributor channels, reductions in ex-factory prices for non-standard products, and a lower mix of premium products weighed on revenue and margins in the short term. The bank expects revenue growth to remain positive in the second half of 2026, supported by a low comparison base and multiple rounds of price adjustments. The wholesale price of Feitian Moutai has remained above RMB1,700 per bottle since late July, which is also seen as a sign that pricing and channel adjustments are beginning to show results.
Analysis framework
The report assesses the company using quarterly operating data, product and channel breakdowns, customer advances and cash collections from sales, changes in gross margin and operating margin, as well as DCF valuation and historical P/E ranges.
Methodology notes
Intrinsic-value valuation based on future cash flows
The analyst uses a DCF methodology to set the target price; after lowering earnings forecasts for 2026–2028, the target price was reduced from RMB1,660.00 to RMB1,578.40.
A measure of equity valuation based on earnings per share
The report states that the company's share price is near a historical low of around 20x expected 2026 P/E, and lists 2026E, 2027E, and 2028E P/E multiples of 19.9x, 18.7x, and 17.5x, respectively.
Assessment of changes in revenue and margins through direct sales, wholesale channels, and product mix
A higher share of direct sales and i Moutai supports reform progress, but declining distributor-channel sales, price cuts for non-standard products, and a lower share of ultra-premium products reduced revenue and gross margin in the short term.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Kweichow Moutai（600519.SS）Covered security
- Strengths
- Leading position in high-end sauce-aroma baijiu; significant expansion in direct sales and i Moutai; stabilized Feitian Moutai wholesale prices; growth is expected to recover in the second half with support from a low comparison base and price adjustments.
- Weaknesses
- Second-quarter revenue and profit fell short of expectations; sales of other series liquor declined significantly; distributor sales are under pressure during channel adjustment.
- Comparison
- The company's 2026E P/E is approximately 19.9x, which the report considers historically low; 2027E and 2028E P/E are expected to be 18.7x and 17.5x, respectively.
- Risks
- Market-oriented pricing and channel reforms may be less effective than expected; product mix may continue to weaken; wholesale prices may decline again; consumer demand recovery may disappoint; and margins may remain under pressure.
Key data
- Second-Quarter Total RevenueRMB37.6bn, -5% year on yearBelow market expectations.
- Second-Quarter Net ProfitRMB17.2bn, -7% year on yearBelow market expectations.
- Moutai Liquor SalesRMB31.7bn, -1% year on yearSecond-quarter sales performance was relatively resilient.
- Other Series Liquor SalesRMB5.1bn, -25% year on yearA major source of pressure on revenue.
- Direct-Sales Channel+34% year on year, 61% of core operating revenueUp 18 percentage points year on year and 6 percentage points quarter on quarter.
- i Moutai Sales+283% year on year, 51% of core operating revenueUp 38 percentage points year on year and 11 percentage points quarter on quarter.
- Distributor Channel-35% year on yearReflects proactive channel adjustment.
- Second-Quarter Gross Margin-1.2 percentage points year on yearAffected by product mix, lower ex-factory prices for non-standard products, and operating leverage.
- Second-Quarter Operating Margin-1.3 percentage points year on yearThe selling-expense ratio declined 0.2 percentage points, while the administrative-expense ratio increased 0.3 percentage points.
- Target Price and RatingRMB1,578.40; BuyThe target price was reduced from RMB1,660.00.
Impact & implications
Near-term earnings delivery and margins are under pressure, and earnings forecasts were lowered by an average of 3%. However, if Feitian Moutai wholesale prices remain stable and price adjustments continue to improve the channel structure, market expectations for growth and valuation may gradually recover. The report maintains a Buy rating, arguing that the current expected 2026 P/E of around 20x is already at a historically low level.
Risks
- The pace or effectiveness of market-oriented pricing and channel reforms may fall short of expectations.
- Insufficient stability in Feitian Moutai wholesale prices could affect market confidence and channel demand.
- Adjustments to ex-factory prices for non-standard products and changes in product mix may continue to pressure gross margin.
- Weak sales of other series liquor may weigh on overall revenue growth.
- Uncertainty remains regarding high-end baijiu demand, the macro consumption environment, and distributor destocking progress.
What to watch
- Whether revenue growth in the second half of 2026 can turn positive and remain positive, supported by a low comparison base and price adjustments.
- Whether Feitian Moutai wholesale prices can remain above RMB1,700 per bottle.
- The revenue mix and channel-margin balance among direct sales, i Moutai, and distributor channels.
- Changes in customer advances, cash collections from sales, and end-market demand.
- Whether gross margin and operating margin can recover as product mix and operating leverage improve.
- Further updates to the company's 2026–2028 earnings outlook and market-oriented reform initiatives.