Visibility of Zhenjiu's recovery extends into 2027, while Lidu's nationwide expansion supports growth but valuation upside is limited

Overview

This report reviews ZJLD's 1H26 results and management discussions, focusing on Zhenjiu's channel recovery, Lidu's nationwide expansion, regional and distributor expansion, and the implications of these developments for 2026E-2028E earnings forecasts and valuation. Goldman Sachs raised its earnings forecasts and target price but maintained its Neutral rating because the target price is slightly below the current price.

Core views

ZJLD announced its 1H26 results on August 19, 2026, and Goldman Sachs attended an in-person results briefing on August 20. Zhenjiu's sales declined by approximately 10% in 1H, less than the initially expected mid-to-high-teens decline, mainly because Zhen 15 completed channel destocking earlier and recovered faster than expected, supported by its established consumer demand. Management believes that leaner channel inventory and a broader product recovery will support Zhenjiu's return to growth in 2027. 2026 remains a phase of channel repair and capability building. The company will continue expanding the Ten Thousand Merchants Alliance, recruiting high-quality distributors, and improving brand marketing and channel efficiency to enable products other than Zhen 15 to recover gradually. By product, 1H26 shipment volumes of Zhen 30, Zhen 5 and Zhen 8 were proactively controlled at approximately 60% of 1H25 levels to protect channel health. The company plans to begin gradually restoring these products from September through a monthly profit-sharing program, although more meaningful improvement is not expected until 2027. Management believes Da Zhen will have limited cannibalization of existing products because their channel positioning differs: Zhen 30 primarily targets traditional baijiu distributors, whereas Da Zhen is more focused on small group-purchase distributors and cross-industry distributors. This means product recovery depends not only on end demand but also on the company's ability to maintain channel differentiation and avoid renewed inventory accumulation. Lidu's nationwide expansion continues to progress according to plan. Lidu 1975, priced at approximately RMB400, remained the largest single product in 1H26, while Lidu Wang, priced at RMB100-200, became the second-largest revenue contributor. In 1H, Lidu's sales grew by approximately 15% in Jiangxi and 30%-40% outside Jiangxi, indicating that expansion outside its home province was significantly faster than growth in its core market. Goldman Sachs also noted that the growth momentum of Lidu and Xiangjiao since 1H26 has been stronger than previously expected, providing an important basis for its upward revisions to medium-term revenue forecasts. From a regional and channel perspective, Zhenjiu's 2026 strategy has two dimensions: horizontal entry into economically stronger non-core markets and vertical penetration into lower-tier markets within core regions such as Henan. The Ten Thousand Merchants Alliance remains the primary growth driver, with a focus on developing group-purchase distributors. Management maintained its target of reaching 10,000 distributors within three years. In the next phase, it will place greater emphasis on recruiting partners with strong group-purchase capabilities and strengthening support for existing distributors. Whether expansion in distributor numbers can translate into effective sell-through rather than renewed inventory accumulation is critical to Zhenjiu's recovery path. For the Mid-Autumn Festival and National Day peak season, management views corporate customers in the Yangtze River Delta, Pearl River Delta and Hunan as important sources of demand and has introduced localized policies around Mid-Autumn Festival consumption occasions. On the consumer side, the company will conduct scan-to-win campaigns for Zhen 15, Lao Zhenjiu, Zhen 5 and Zhen 8, complemented by tasting events and consumer engagement. These measures aim to improve terminal sell-through during the peak season and build a consumer base for the subsequent recovery of non-core products. Based on improved visibility into Zhenjiu's recovery in 2027 and stronger momentum at Lidu and Xiangjiao, Goldman Sachs raised its 2026E-2028E sales forecasts by 4%-6% and net profit forecasts by 1.5%-6.5%. Its 2026E adjusted net profit forecast was additionally raised by 12.5%, reflecting the impact of the Ten Thousand Merchants Alliance and employee share ownership plan. Goldman Sachs expects total sales to grow by approximately 19% year over year in 2026E, with Zhenjiu and Lidu growing by 17% and 29%, respectively. Adjusted net profit is expected to reach RMB924mn, up 76.5% year over year. The model forecasts revenue rising from RMB3.6505bn in 2025 to RMB4.3391bn in 2026E, RMB5.0219bn in 2027E and RMB5.7502bn in 2028E. The EBITDA margin is expected to increase from 25.8% in 2025 to 32.3% in 2026E, 36.8% in 2027E and 39.4% in 2028E, indicating that revenue recovery, gross margin expansion and selling expense savings will jointly drive profit growth faster than revenue growth. Basic earnings per share in the forecast table rise from RMB0.16 in 2025 to RMB0.25 in 2026E, RMB0.36 in 2027E and RMB0.45 in 2028E. Including special items, 2026E earnings per share are RMB0.28. Inventory turnover days are expected to decline from 834.4 days in 2025 to 624.0 days in 2026E, 430.0 days in 2027E and 407.3 days in 2028E, consistent with the channel streamlining emphasized in the report. Based on the current price, the report text indicates 2026E and 2027E P/E multiples of approximately 24.5x and 19x, while the corresponding figures in the forecast table are 24.0x and 18.6x, with 2028E at 14.8x. For valuation, Goldman Sachs applies a 2027E P/E methodology, using a 19.3x 2027E P/E multiple and discounting to mid-2027 at an 8.2% cost of equity to derive a 12-month target price of HK$7.70, up from HK$7.20 previously, with the valuation methodology unchanged. Although operating conditions and earnings forecasts have both improved, the HK$7.70 target price still implies 1.1% downside versus the current price of HK$7.79, so Goldman Sachs maintains its Neutral rating.

Analysis framework

Goldman Sachs first combines the 1H26 results with management's in-person briefing to assess the actual pace of recovery across brands, products, regions and channels. It then incorporates Zhenjiu's destocking, Lidu's expansion outside its home province, the efficiency of the Ten Thousand Merchants Alliance, gross margin and selling expense changes into its 2026E-2028E revenue and profit forecasts. Finally, it uses 2027E P/E as the valuation benchmark, discounts the valuation using the cost of equity to derive a 12-month target price, and determines the rating by comparing it with the current share price.

Methodology notes

• Valuation MethodologyPE/PEG valuation

  2027E P/E target price methodology

  The report applies a 19.3x P/E multiple to 2027E earnings and discounts the result to mid-2027 using an 8.2% cost of equity, deriving a 12-month target price of HK$7.70.

• Cycle and Business Climate Framework

  Channel destocking—product recovery pace analysis

  The report assesses Zhenjiu's recovery path based on the sequence of destocking across products, proactive shipment control ratios, channel inventory health and recovery timelines: Zhen 15 recovers first, while other products gradually restart from September 2026, with more meaningful recovery expected in 2027.

• Corporate Fundamentals and Financial Framework

  Brand- and region-based operating driver forecasts

  Goldman Sachs separately examines the growth of Zhenjiu, Lidu and Xiangjiao, as well as performance inside and outside Jiangxi, in core and non-core markets, and across different distributor channels, before incorporating revenue recovery, gross margin expansion and selling expense savings into its earnings forecasts.

Asset mapping & comparison

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

• ZJLD (6979.HK)

  The Hong Kong-listed company directly covered by the report, with earnings improvement primarily linked to Zhenjiu's channel recovery, Lidu's nationwide expansion and expansion of the Ten Thousand Merchants Alliance.

  Strengths

  Zhen 15 recovered faster than expected; Lidu's sales outside its home province grew by 30%-40%; revenue recovery, gross margin expansion and selling expense savings support accelerated earnings growth.

  Weaknesses

  Zhen 30, Zhen 5 and Zhen 8 remain in the shipment-control and gradual recovery phase, with a more meaningful recovery not expected until 2027; the target price is below the current price.

  Risks

  Intensifying competition in the mid-to-high-end segment, prolonged policy impacts on banquet consumption, and new product launch and cultivation outcomes deviating from expectations.

Key data

• Zhenjiu 1H26 salesDown approximately 10% year over yearThe decline was smaller than the initially expected mid-to-high-teens decrease, mainly driven by Zhen 15's faster recovery after completing destocking earlier
• Shipments of Zhen 30, Zhen 5 and Zhen 8Approximately 60% of 1H25 levelsShipments were proactively controlled in 1H26 to protect channel health and will gradually recover from September 2026
• Lidu regional salesUp approximately 15% in Jiangxi; up 30%-40% outside the province1H26 performance, with faster nationwide expansion outside its home province
• Price points of Lidu's core productsLidu 1975 approximately RMB400; Lidu Wang RMB100-200They were the largest and second-largest revenue-contributing products, respectively, in 1H26
• Ten Thousand Merchants Alliance target10,000 distributors within three yearsManagement maintained the target, with future emphasis on distributors possessing strong group-purchase capabilities
• 2026E sales growthApproximately 19%Zhenjiu and Lidu are expected to grow by 17% and 29% year over year, respectively; total revenue growth in the forecast table is 18.9%
• 2026E adjusted net profitRMB924mnExpected to increase by 76.5% year over year; the forecast table shows net profit including special items of RMB923.8mn
• 2026E-2028E revenue forecastsRMB4.3391bn, RMB5.0219bn, RMB5.7502bnGoldman Sachs raised its sales forecasts for the period by 4%-6%
• 2026E-2028E EBITDARMB1.4027bn, RMB1.8457bn, RMB2.2683bnCorresponding to EBITDA margins of 32.3%, 36.8% and 39.4%
• 2026E-2028E earnings per shareRMB0.28, RMB0.36, RMB0.45The 2026E figure represents earnings per share including special items
• Earnings forecast revisionsNet profit raised by 1.5%-6.5%; 2026E adjusted net profit additionally raised by 12.5%Covers 2026E-2028E, with drivers including stronger revenue, gross margin expansion, selling expense savings, the Ten Thousand Merchants Alliance and the employee share ownership plan
• Inventory turnover days834.4 days in 2025; 624.0 days in 2026E; 430.0 days in 2027E; 407.3 days in 2028EThe forecasts indicate annual improvement in inventory efficiency
• Current valuationApproximately 24.5x 2026E P/E; approximately 19x 2027E P/EShown in the report text based on the current trading price; the corresponding figures in the forecast table are 24.0x and 18.6x
• Target price12-month HK$7.70Previously HK$7.20; based on a 19.3x 2027E P/E multiple and an 8.2% cost of equity
• Current price and target returnHK$7.79; 1.1% downsideThe target price is slightly below the current price stated in the report
• Market capitalization and enterprise valueHK$24.3bn; HK$18.7bnShown on the report's key data page

Impact & implications

The report believes that Zhen 15's faster recovery, the gradual restart of other Zhenjiu products and Lidu's expansion outside its home province improve visibility into Zhenjiu's recovery in 2027 and medium-term revenue growth. Revenue recovery, gross margin expansion and selling expense savings are expected to drive faster improvement in margins and net profit, but the higher target price remains slightly below the current price, meaning the improved operating outlook has not yet translated into positive target return potential.

Risks

• If competition in the mid-to-high-end market is more intense than expected, it could present downside risks to the target price and operating forecasts.
• If policy impacts on banquet consumption persist for longer, demand recovery could be weaker than expected in the report.

What to watch

• Monitor the recovery progress of Zhen 30, Zhen 5 and Zhen 8 from September 2026 and whether they can achieve more meaningful growth in 2027.
• Monitor whether Zhenjiu's channel inventory remains lean and avoids renewed accumulation after shipments resume.
• Monitor the Ten Thousand Merchants Alliance's recruitment of high-quality distributors with group-purchase capabilities and progress toward its three-year target of 10,000 distributors.
• Monitor whether Lidu can sustain 30%-40% growth outside Jiangxi as its nationwide expansion continues.
• Monitor demand from corporate customers in the Yangtze River Delta, Pearl River Delta and Hunan during the Mid-Autumn Festival and National Day peak season, as well as the sell-through effects of scan-to-win promotions and tasting events.
• Monitor the intensity of competition in the mid-to-high-end segment, the duration of policy impacts on banquet consumption, and the performance of new product launches and cultivation.