Luzhou Laojiao (000568): Nomura initiates Luzhou Laojiao at Buy, expecting a 2027F earnings recovery led by National Cellar 1573

Overview

This initiation report assesses Luzhou Laojiao's earnings adjustment amid soft premium-baijiu demand and channel destocking. Nomura expects the National Cellar 1573-led portfolio to retain resilient pricing, with volume recovery and lower selling-expense intensity supporting a return to earnings growth from 2027F.

Core views

Nomura views 2026F as Luzhou Laojiao's key adjustment year. The company’s mid- and high-end baijiu portfolio, led by National Cellar 1573 and supplemented by Luzhou Laojiao Tequ and Century-old Luzhou Laojiao Jiaoling Baijiu, is the principal contributor to revenue and profit. Soft end-demand and ongoing channel adjustment are expected to keep premium-baijiu volumes under pressure in the near term, although National Cellar 1573 retail pricing has remained broadly stable in 2026 year-to-date. The report forecasts mid- and high-end sales volume to fall 32.0% year-on-year to 25.4kt in 2026F, then recover 7.5% in both 2027F and 2028F to 27.3kt and 29.3kt, respectively. The report argues that 2026F pricing resilience will be driven primarily by product mix rather than broad-based price increases. As lower-priced products see greater volume weakness, mid- and high-end ASP is forecast to rise 4.0% year-on-year to CNY640k per tonne in 2026F. As Luzhou Laojiao Tequ and Century-old Luzhou Laojiao Jiaoling Baijiu recover, the mix is expected to normalize, leading to a 2.0% ASP decline in 2027F and broadly stable pricing in 2028F. Nomura forecasts mid- and high-end segment revenue of CNY16.24bn, CNY17.11bn and CNY18.40bn in 2026F-28F, with gross margin held at about 90% through the period. Other baijiu is expected to be relatively more demand-resilient because mass-market products serve a broader consumer base and rely less on business and gifting occasions. Still, Nomura forecasts other-baijiu volume to decline 8.0% in 2026F before rising 5.0% and 3.0% in 2027F and 2028F. Segment revenue is forecast at CNY2.35bn, CNY2.52bn and CNY2.65bn, while gross margin is expected to decline from 49% in 2026F to 47% in 2027F and 46% in 2028F amid competition and promotional pressure. The earnings-recovery case depends materially on operating leverage and normalization in selling costs. Channel and brand investment is relatively rigid during revenue contraction, so Nomura forecasts the selling-expense ratio to rise to 15.0% in 2026F, or approximately CNY2.81bn. As inventory pressure eases and the need for promotional and channel support declines, the ratio is forecast to fall to 13.5% in 2027F and 12.0% in 2028F, with selling expenses declining to about CNY2.67bn and CNY2.54bn. Blended gross margin is forecast at 84.7%, 84.4% and 84.3% in 2026F-28F; net margin is expected to recover from 39.3% in 2026F to 41.2% in 2028F. This is why Nomura expects net-profit growth of 7.9% in 2027F and 9.9% in 2028F to exceed revenue growth of 5.6% and 7.2%. The report forecasts total revenue of CNY18.72bn, CNY19.76bn and CNY21.17bn for 2026F-28F, corresponding to year-on-year 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% growth. Nomura's revenue estimates are 0.8%, 1.2% and 2.2% below Wind consensus for 2026F-28F, while net-profit estimates are 0.3%, 0.5% and 0.5% below consensus, reflecting more conservative assumptions for demand recovery, premium-baijiu volume and margin pressure from competition and channel investment. Nomura initiates coverage at Buy. It uses a P/E-based approach given the mature business models and earnings profiles of baijiu companies, applying 17x 2026F P/E to forecast 2026F EPS of approximately CNY5.00 to derive a CNY84.92 target price. The selected multiple is about a 4% discount to the peer-group average of roughly 17.5x, reflecting Luzhou Laojiao's earnings-adjustment phase and below-peer 2026F-28F EPS CAGR and ROE. Nomura considers this discount partly offset by National Cellar 1573's brand equity and resilient pricing, alongside the expected volume and cost recovery from 2027F. The target implies 21.4% upside, while the stock trades at approximately 14.0x 2026F P/E.

Analysis framework

Nomura reviews 1H26 operating performance, then forecasts volumes, ASPs, segment revenue, gross margin and expense ratios across mid- and high-end baijiu and other baijiu for 2026F-28F. It compares its estimates with Wind consensus and values the company against selected baijiu peers using 2026F P/E.

Methodology notes

• Industry AnalysisVolume-price decomposition

  Segment forecasts separating sales volume, average selling price, product mix and gross margin.

  The report explains revenue changes through volume declines and recovery, alongside ASP movements driven mainly by mix rather than broad-based price increases.

• Valuation methodsP/E and PEG Valuation

  Peer-relative P/E multiple valuation.

  Nomura applies 17x 2026F P/E to forecast EPS of CNY5.00, using a discount to the approximately 17.5x peer average to reflect lower growth and ROE.

Asset mapping & comparison

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

• Luzhou Laojiao (000568.SZ)

  Primary covered company; earnings recovery is expected from 2027F as premium-baijiu volumes improve and selling expenses normalize.

  Strengths

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

  Weaknesses

  2026F volume contraction, earnings adjustment and below-peer forecast EPS CAGR and ROE.

  Comparison

  Assigned 17x 2026F P/E, about a 4% discount to the peer-group average of roughly 17.5x.

  Risks

  Slower macro and consumption recovery, stronger industry competition, or slower recovery in mid- and high-end sales volumes.

• Kweichow Moutai (600519 CH)

  Peer used in Nomura's valuation comparison.

  Comparison

  Rated Buy; included in the peer group used to benchmark Luzhou Laojiao's valuation.

• Wuliangye (000858 CH)

  Peer used in Nomura's valuation comparison.

  Comparison

  Rated Neutral; included in the peer group used to benchmark Luzhou Laojiao's valuation.

Key data

• 1H26 revenueCNY10.47bnDown 36.4% year-on-year
• 1H26 net profitCNY4.34bnDown 43.4% year-on-year
• 2026F revenueCNY18.72bnDown 27.3% year-on-year
• 2026F net profitCNY7.35bnDown 32.1% year-on-year
• Mid- and high-end baijiu volume25.4kt in 2026FForecast to decline 32.0% year-on-year before 7.5% growth in each of 2027F and 2028F
• Selling-expense ratio15.0% / 13.5% / 12.0%Nomura forecasts for 2026F / 2027F / 2028F
• Target priceCNY84.92Based on 17x 2026F P/E and CNY5.00 2026F EPS; implies 21.4% upside

Impact & implications

Nomura expects a near-term earnings adjustment rather than a deterioration in the core premium brand. Its recovery thesis rests on stabilization in mid- and high-end volumes, easing channel inventory pressure and lower selling-expense intensity from 2027F, while its cautious forecasts remain below consensus due to demand and competition assumptions.

Risks

• A weaker-than-expected macroeconomic and household-consumption recovery could delay business, gifting and gathering occasions, weighing on sell-through and revenue growth.
• More intense baijiu competition could require greater promotional and channel-support spending, raising the selling-expense ratio and slowing margin recovery.
• A slower recovery in end-demand or channel destocking could leave mid- and high-end sales volumes below forecast and delay revenue and earnings recovery.

What to watch

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