1Q revenue slightly beat expectations; margins under pressure but Buy maintained

Overview

This report is Deutsche Bank's review of Kweichow Moutai's 1Q26 results. First-quarter revenue was slightly above market expectations, while net profit was broadly in line with expectations. The report focuses on changes in channel mix, iMoutai growth, customer advances and cash flow, declines in gross margin and net margin, as well as slight adjustments to the target price and earnings forecasts.

Core views

Deutsche Bank maintains a Buy rating on Kweichow Moutai. The core view is that although 1Q26 margins were dragged down by product mix changes, price cuts on non-standard products, and a higher sales tax rate, the revenue side remains resilient, while market-oriented reform has driven growth in direct sales and iMoutai; the current valuation of about 21x 2026E P/E is at a historical low, and first-quarter performance provides a foundation for mid-single-digit revenue growth for the full year.

Analysis framework

The report mainly breaks down first-quarter results, comparing changes in revenue, net profit, sales by channel, customer advances, cash collections, gross margin, operating margin, and net margin, and combines Feitian Moutai wholesale prices, DCF valuation, earnings forecast revisions, and historical valuation ranges to assess the investment view.

Methodology notes

• Valuation methodsDCF

  Discounted cash flow valuation

  The report uses the DCF method to determine the 12-month target price, and after incorporating 1Q26 results, lowered the target price from RMB 1,684.70 to RMB 1,660.00.

• Valuation comparisonP/E band

  P/E range comparison

  The report notes that the company is currently trading at about 21x 2026E P/E, which is at a historical low, and compares this with the forward P/E range over the past 12 months.

• Operating analysisChannel and margin breakdown

  Breaking down performance changes by channel and margin

  The report breaks down revenue growth into Moutai liquor, series liquor, direct sales, wholesale, and iMoutai, and analyzes the sources of declines in gross margin, operating margin, and net margin.

Asset mapping & comparison

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

• Kweichow Moutai 600519.SS

  Stock under coverage

  Strengths

  Its brand and leadership in the high-end sauce-aroma baijiu segment remain solid; 1Q26 revenue slightly beat expectations; iMoutai and the direct sales channel grew rapidly; valuation is at a historical low; forecast dividend yield rises year by year.

  Weaknesses

  1Q gross margin, operating margin, and net margin all declined year-on-year; customer advances fell significantly; wholesale channel revenue declined; price cuts on non-standard products affected profitability.

  Comparison

  The report compares the company's current valuation of about 21x 2026E P/E with its historical P/E range and believes valuation is at a low level; the share price has rebounded about 6% year to date, and the Feitian Moutai wholesale price has recently stabilized at about RMB 1,670 per bottle.

  Risks

  Baijiu demand may come in below expectations, wholesale prices may continue to decline, channel reform may be less effective than expected, product mix may deteriorate, margins may remain under pressure, and market valuation may compress.

Key data

• 1Q26 total revenueRMB 54.7 billion, up 6.3% year-on-yearSlightly above market expectations.
• 1Q26 net profitRMB 27.2 billion, up 1.5% year-on-yearBroadly in line with expectations.
• Moutai liquor salesRMB 46.0 billion, up 5.6% year-on-year1Q26 data.
• Series liquor salesRMB 7.9 billion, up 12.2% year-on-year1Q26 data.
• Direct sales channelUp 27% year-on-year, accounting for 55% of core operating revenueIts share rose 9 percentage points year-on-year.
• iMoutaiSales up 267% year-on-year, accounting for 40% of core operating revenueIts share rose 28 percentage points year-on-year, an important reflection of channel reform.
• Wholesale channelDown 11% year-on-yearRelated to the rising share of direct sales and market-oriented reform.
• Customer advancesDown 62% quarter-on-quarter and down 66% year-on-yearAfter considering advances, adjusted sales declined 2% year-on-year.
• 1Q gross marginDown 3.3 percentage points year-on-yearAffected by product mix changes, lower ex-factory prices for non-standard products, and a higher sales tax rate.
• 1Q operating marginDown 3.0 percentage points year-on-yearThe selling expense ratio was broadly stable, while the administrative expense ratio fell 0.3 percentage points.
• 1Q net margin50%, down 2.4 percentage points year-on-yearMainly due to the decline in gross margin and lower interest income.
• Feitian Moutai wholesale priceAbout RMB 1,670 per bottleRecently stable, below the peak of about RMB 1,700 per bottle during the Spring Festival period.
• Target priceRMB 1,660.00Lowered from RMB 1,684.70.
• Current priceRMB 1,419.00As of April 23, 2026.
• 2026E P/EAbout 20.5x to 21xThe report says the valuation is at a historical low.

Impact & implications

The implications of the results for the stock price are somewhat positive but not without flaws: revenue and progress in channel reform provide support, while strong iMoutai growth raises the share of direct sales; however, declining margins, lower customer advances, and a drop in adjusted sales suggest that demand and the pricing system still need to be watched. The lower target price reflects slight cuts to earnings forecasts and margin pressure, while maintaining Buy reflects the view of low valuation and resilient full-year revenue growth.

Risks

• Changes in product mix and lower ex-factory prices for non-standard products may continue to depress gross margin.
• Customer advances fell sharply both quarter-on-quarter and year-on-year, and adjusted sales declined 2% year-on-year, suggesting revenue quality and demand momentum need to be watched.
• Wholesale channel revenue declined year-on-year, and channel mix adjustment may bring short-term volatility.
• If the Feitian Moutai wholesale price declines again, it may affect market confidence and valuation.
• Declining interest income and a higher sales tax rate may continue to pressure net margin.
• Deutsche Bank or its affiliates may provide market-making or liquidity services for relevant financial instruments, creating potential conflict-of-interest disclosure issues.

What to watch

• Whether the Feitian Moutai wholesale price can remain stable around RMB 1,670 per bottle or improve.
• Whether strong iMoutai sales growth can continue, and the net impact of a higher direct sales mix on margins.
• Whether customer advances and cash flow from sales of goods recover growth.
• The ongoing impact of ex-factory price adjustments for non-standard products on product mix and gross margin.
• Whether full-year revenue can achieve mid-single-digit growth.
• Whether 2026E to 2028E earnings forecasts still need further downward revisions.