Fenjiu's 4Q25 revenue was strong but may have been accompanied by channel stuffing, with rising subsequent destocking pressure

Overview

This report is Morgan Stanley's review of Shanxi Fenjiu's 4Q25 results. It believes 2025 revenue growth beat expectations and net profit was broadly in line, but the rapid 4Q25 revenue growth diverged from cash collections, industry demand, and regional performance, signaling channel stuffing and subsequent destocking risk. Despite a possible near-term slowdown in fundamentals, the report maintains an Overweight rating with a target price of Rmb206.00.

Core views

The core views are: first, 2025 revenue grew 7.5% YoY, beating market consensus, but net profit was flat YoY, showing insufficient earnings elasticity; second, 4Q25 sales grew 24.5% YoY while net profit fell 5.7% YoY, and combined with the low base in 4Q24, strong growth in the Shanxi local market, and a 1% YoY decline in cash received from selling goods, this suggests growth quality should be interpreted cautiously; third, channel checks show demand remains weak, and 1Q26/2Q26 may see sequential slowing or declines due to destocking pressure; fourth, the payout ratio and shareholder return plan provide some support for shareholder returns.

Analysis framework

The report cross-validates revenue, margins, cash flow, advances from customers, distributor count, and valuation assumptions using company disclosures, Morgan Stanley models, market consensus forecasts, channel checks, and operating data by region and by brand.

Methodology notes

• Valuation methodDCF

  Discounted cash flow valuation

  The base case uses the DCF method, incorporating the sustainability of the company's long-term growth and the impact of potential risks on earnings; key assumptions include a WACC of 12% and a terminal growth rate of 2.0%.

• Financial modelMorgan Stanley ModelWare

  Earnings forecasting framework

  Unless otherwise stated, the main financial metrics in the report are based on the Morgan Stanley ModelWare framework.

• Consensus expectationsRefinitiv Estimates

  Market consensus data

  Data marked as consensus are provided by Refinitiv Estimates and are used to compare company performance with market expectations.

Asset mapping & comparison

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

• 600809.SS

  Covered company stock

  Strengths

  Strong brand foundation, with the core Fen Wine brand accounting for 97% of baijiu sales; faster growth in out-of-province markets; improved net cash position; and relatively clear payout ratio and shareholder return plan.

  Weaknesses

  ASP fell 12% YoY, while gross margin and operating margin declined; 4Q25's high revenue growth did not match cash collection performance, raising concerns about channel stuffing.

  Comparison

  2025 sales growth of 7.5% was about 3% above market consensus, but net profit was only flat YoY, indicating earnings quality was weaker than revenue performance.

  Risks

  Weak demand, destocking, downtrading in product mix, volatility in growth of the Shanxi local market, and intensifying competition in premium baijiu.

Key data

• 2025 sales growth7.5% YoYAbout 3% above market consensus and about 2% above Morgan Stanley's forecast.
• 2025 net profitFlat YoYOverall broadly in line with market consensus and Morgan Stanley's forecast.
• 4Q25 sales growth24.5% YoYAchieved on a low 4Q24 base, but the report warns it may include channel stuffing.
• 4Q25 net profit growth-5.7% YoYHigh revenue growth did not translate into profit growth.
• 2025 volume growth22% YoYSales growth was mainly driven by volume.
• 2025 ASP change-12% YoYThe decline in average selling price suggests pressure on product mix or pricing.
• 2025 out-of-province baijiu sales+12.6% YoY, accounting for 65% of baijiu salesThe out-of-province market outperformed the Shanxi local market.
• 2025 Shanxi baijiu sales-0.8% YoYThe local market declined slightly for the full year, but grew 49% YoY in 4Q25.
• 2025 core Fen Wine brand sales+7.7% YoY, accounting for 97% of baijiu salesThe core brand remains the main revenue contributor.
• 2025 operating margin change-2.8pptMainly driven by a 2.7ppt decline in gross margin, while expense ratios were broadly stable.
• 4Q25 operating margin change-5.8ppt YoYGross margin contracted 10.6ppt, partly offset by a 4.8ppt reduction in expense ratios.
• 4Q25 customer advancesRmb7bnAbove Rmb5.8bn in 3Q25 and below Rmb8.7bn in 4Q24.
• 4Q25 distributor count4,455Above 4,359 in 3Q25, with additions mainly from the out-of-province Shanxi market.
• 4Q25 cash inflow from sale of goodsRmb6.4bn, -1% YoYThis contrasts with high revenue growth and is an important clue in assessing channel pressure.
• Net cash positionRmb9.8bnAbove Rmb6.3bn in 4Q24.
• 2025 payout ratio65%Above 60% in 2024; the 2025-27 shareholder return plan sets a minimum of 65%.

Impact & implications

In terms of investment implications, the Overweight rating and 50% target upside reflect continued medium- to long-term valuation appeal, but the near-term operating pace may be affected by weak industry demand, channel destocking, ASP declines, and gross margin contraction. Investors need to distinguish reported revenue growth from true end-demand sell-through and closely monitor cash collections, customer advances, and channel inventory changes.

Risks

• A slowdown in China's economic growth could suppress private consumption of baijiu.
• Competition in the premium baijiu market may intensify.
• The strong revenue growth in 4Q25 may have come from channel stuffing, and subsequent destocking may weigh on 1Q26/2Q26 sales.
• A weaker product mix and lower ASP may continue to pressure gross margin.
• The divergence between cash collections and revenue growth may signal pressure on channel quality and sell-through.

What to watch

• Whether revenue slows sequentially or declines in 1Q26 and 2Q26.
• Whether cash inflow from sales of goods recovers and matches revenue growth.
• Changes in customer advances, channel inventory, and distributor count.
• Growth differences between the Shanxi in-province and out-of-province markets, especially the sustainability after strong in-province growth in 4Q25.
• Product mix and gross margin trends of core Fen Wine SKUs.
• Execution of the 2025-27 plan for a payout ratio of no less than 65%.