Kweichow Moutai stabilized after destocking in 1Q26; Overweight maintained

Overview

This report is Morgan Stanley's review of Kweichow Moutai Company Ltd.'s 1Q26 results. The core view is that Kweichow Moutai has shown signs of stabilization after earlier destocking: first-quarter revenue and profit growth were broadly in line with consensus expectations and also matched channel feedback trends around the Spring Festival. The company supported sales by launching Feitian Moutai on iMoutai, increasing the share of direct sales, and promoting more market-oriented channel management, but this also led to a notable decline in customer advances and pressure on margins.

Core views

The report maintains a relatively positive view on Kweichow Moutai. 1Q26 sales grew 6.5% year-over-year and net profit grew 1.5% year-over-year, indicating that demand and channel adjustments did not deteriorate further. iMoutai and direct sales channels became the main sources of growth, with the direct sales mix rising to 55% and iMoutai sales surging year-over-year. Looking ahead to 2Q26, the price increase for Feitian Moutai is expected to partly offset potential weakness in non-Feitian SKUs; the report also expects the industry to improve in the second half of 2026. Negative factors include lower gross margin, declining operating margin, and a sharp reduction in customer advances, indicating that the channel transition is still affecting financial performance.

Analysis framework

The report mainly relies on actual first-quarter financial data, company disclosures, Morgan Stanley ModelWare estimates, consensus expectations, and channel feedback, comparing revenue, net profit, brand-level sales, channel structure, margins, customer advances, cash flow, and net cash position, and combines these with a valuation model to derive the rating, target price, and risk-reward assessment.

Methodology notes

• Valuation methodsDCF

  Discounted cash flow valuation

  The base case uses a discounted cash flow method, with key assumptions including an 11% WACC, a 3% risk-free rate, a 9.8% risk premium, and a 2% terminal growth rate.

• Earnings ForecastMorgan Stanley ModelWare

  Sell-side model forecast

  Unless otherwise stated, the main financial metrics in the report are based on the Morgan Stanley ModelWare framework, while also referencing Refinitiv Estimates consensus expectations.

Asset mapping & comparison

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

• 600519.SS

  Research target

  Strengths

  Strong brand moat, support from the Feitian Moutai price increase, strong growth in direct sales and iMoutai, ample net cash, and relatively high earnings visibility.

  Weaknesses

  Gross margin and operating margin declined, customer advances dropped significantly, and the channel transition has caused short-term financial volatility.

  Comparison

  Relative to Morgan Stanley's China/Hong Kong consumer coverage, the stock is rated Overweight and the industry view is In-Line.

  Risks

  Premium baijiu sales growth below expectations, continued declines in Moutai wholesale and retail prices, and weaker-than-expected series liquor performance.

Key data

• 1Q26 sales growth+6.5% yoyBroadly in line with consensus expectations and consistent with channel feedback trends around the Spring Festival.
• 1Q26 net profit growth+1.5% yoyEarnings growth was slower than revenue growth, reflecting margin pressure.
• Core Moutai liquor brand sales growth+5.6% yoyContributed 85% of 1Q26 liquor sales, below 86% in 1Q25 and 89% in 4Q25.
• Series liquor sales growth+12.2% yoyGrowth was faster than that of the core Moutai liquor brand.
• Direct sales as a share of liquor sales55%46% in 1Q25; direct sales in 1Q26 grew 27% year-over-year.
• iMoutai sales growth+267% yoyIncluded in the direct sales channel, driven by the launch of Feitian Moutai on iMoutai in early 2026.
• Operating margin68%Down 3.0 percentage points year-over-year, mainly driven by a 3.3 percentage point year-over-year decline in gross margin.
• Customer advancesRmb3.0bnBelow Rmb8.8bn in 1Q25 and Rmb8.0bn in 4Q25.
• Cash inflow from sales of goodsRmb56bnBasically flat year-over-year.
• Net cashRmb188bnRmb133bn in 4Q25 and Rmb192bn in 1Q25.
• Target priceRmb1,678.00Implies about 15% upside versus the April 24 closing price of Rmb1,458.49.

Impact & implications

The report's investment implication is positive but not without risks. On the positive side, destocking pressure appears to be stabilizing, while the Feitian Moutai price increase, greater direct sales penetration, and growth in the iMoutai channel enhance the company's control over end demand and channels; the company also maintains a strong net cash position. Pressure points include lower customer advances due to channel mix changes, possible weakness in non-Feitian SKUs, and year-over-year declines in gross margin and operating margin. If premium baijiu consumption recovers and wholesale prices rebound faster than expected, valuation may recover further; if premium baijiu sales volume, wholesale and retail prices, or series liquor performance are weaker than expected, earnings and valuation face downside risk.

Risks

• An earlier-than-expected recovery in premium baijiu consumption, a faster-than-expected rebound in Moutai wholesale prices, and further re-rating driven by earnings visibility constitute upside risks.
• Lower-than-expected growth in premium baijiu sales volume constitutes a downside risk.
• Continued declines in Moutai wholesale and retail prices constitute a downside risk.
• Despite the company's resource investment, weaker-than-expected performance of series liquor constitutes a downside risk.
• A higher direct sales mix and channel management adjustments have led to a significant decline in customer advances, which may affect market judgments on channel health and short-term cash conversion.

What to watch

• Whether the 2Q26 Feitian Moutai price increase can offset potential weakness in non-Feitian SKUs.
• Whether the premium baijiu industry improves in the second half of 2026 as the report expects.
• Whether growth in iMoutai and direct sales channels can continue, and the impact of a higher direct sales mix on gross margin, expense ratio, and channel relationships.
• Trends in Moutai wholesale and retail prices.
• Whether customer advances stabilize and recover.
• Whether series liquor growth remains faster than that of the core Moutai liquor brand.