Investment Rating - The report downgrades four stocks: Fen Wine, Luzhou Laojiao, ZJLD to Neutral from Buy, and Anhui Gujing to Sell from Neutral, while maintaining Buy on Kweichow Moutai and Wuliangye [9][36]. Core Insights - The current cycle for the spirits industry is likely prolonged due to the impact of the new austerity policy, with uncertainties on when the cycle will bottom out [1][14]. - The report anticipates policy headwinds to persist from 2Q25 to 2Q26, followed by a modest impact in 2H26 as improper dining restrictions for civil servants normalize [2][14]. - The spirits industry is expected to see a decline in total addressable market (TAM) by 10% to 14% in 2025-27E, with a forecasted decline of over 6% in 2025 and a -2% decline in 2026 [2][14]. Summary by Sections Risk Profiling - A policy impact ranking analysis indicates that upper mid-end and commercial banquet-focused products will face greater pressure, while Moutai is expected to remain resilient due to its gifting demand and limited exposure to government-related banquet consumption [2][12]. Earnings and Valuation Analysis - The report projects +1%/+5% aggregated topline growth for 2025/26E, down from previous estimates of +6%/+9%, with high-end spirits expected to grow by +5%/+5% and upper-mid-high end spirits facing declines of -10%/+2% [2][14]. - A bear case analysis suggests potential earnings downside risks of 6% to 18% for most spirits names compared to the base case [2][14]. Industry Growth Forecast - The spirits industry growth forecast has been revised down to a greater than 6% decline in 2025 and a -2% decline in 2026, compared to prior forecasts of +4%/+3% growth [2][14]. - The report highlights that the spirits industry has been consolidating, with leading players gaining market share, particularly in the super premium segment [2][25]. Company-Specific Insights - Moutai's wholesale price stability is supported by various measures, and the report suggests that a price below RMB 1,800 could hurt distributor profits, leading to market volatility [8][14]. - The report revises down sales and net profit estimates for various companies, including a 1% to 19% reduction for most names, reflecting the impact of the new policy [36][37].

11 June 2025 | 12:11AM HKT China Consumer Staples: May Check In and Consumer Corp. Day Wrap: A bumpy road with policy swings, channel shift amid deflation We hosted multiple staple companies at our Consumer & Leisure Corporate Day and performed channel checks in the past weeks. We are seeing a bumpy road of demand recovery and still largely slow 2Q-to-date run-rates across staples sub-sectors, esp. for spirits, beer, and dairy. Recent policy tightening in alcohol consumption by government officers and civil ...

26 May 2025 | 7:25PM HKT China Spirits Tracker: Key trend check ins around AGMs; Expect weak trend in Dragon-Boat Festival consumption with lagging prepayment As the relatively short peak season around the Dragon Boat Festival (31 May) holidays is a week away, we checked in the latest channel situations of major spirits companies, where only Moutai's prepayment pace is tracking slightly ahead vs. the same festival period last year (with Moutai 1935 increasing consumer rebates for residential banquets), and ...

Summary of Conference Call Notes Industry Overview - **Industry**: Consumer Staples - **Companies Discussed**: Kweichow Moutai (Moutai) and Wuliangye Yibin (WLY) Key Points on Kweichow Moutai (Moutai) 1. **Channel Adjustments**: Moutai's recent strategy to focus on large distributors has stabilized the price of Feitian, positively impacting Moutai's share price [1][2] 2. **Management Goals**: Moutai's management aims to stabilize Feitian prices by 2025, with recent visits to 15 provinces to engage with distributors [2] 3. **Earnings Forecasts**: Moutai's earnings forecasts for 2025/26 have been trimmed by 5% and 9% respectively, but are still 3-5% higher than consensus estimates [4] 4. **Cost Management**: The company is expected to maintain superior cost and operational expense management as distributors regain control over direct-to-consumer (DTC) sales [4] 5. **Price Stability Confidence**: There is increased confidence that Moutai will stabilize or potentially raise Feitian prices moving forward [4] Key Points on Wuliangye Yibin (WLY) 1. **E-commerce Impact**: WLY is facing significant disruptions from e-commerce, with smaller distributors reselling inventory online due to dissatisfaction with price hikes and low rebates [3] 2. **Free Cash Flow (FCF) Concerns**: WLY's estimated FCF for 2024 is projected at RMB30 billion, a 20% decrease year-over-year, raising concerns about its recovery capabilities [5] 3. **Distributor Health**: There are strong concerns regarding WLY's distributor margins and overall health, which may necessitate supply cuts or special rebates to stabilize pricing [5] 4. **Brand Equity Risks**: WLY's brand equity is at risk due to unauthorized reselling activities, which could further complicate pricing strategies [5] 5. **Earnings Forecasts**: WLY's earnings forecasts have been cut, with a new price target set at RMB100, which is 6-12% lower than consensus estimates [5] Additional Insights - **Market Divergence**: The report anticipates a widening performance gap between Moutai and WLY, with Moutai expected to outperform WLY in the near future [1] - **Management Engagement**: Moutai's proactive engagement with distributors is seen as a positive step towards stabilizing market sentiment and pricing [2] - **Model Updates**: The report includes updated models reflecting the latest results for both companies, indicating a cautious outlook for WLY compared to Moutai [4][5]