Kweichow Moutai (600519.SS) 3Q25 Earnings Review Summary Company Overview - **Company**: Kweichow Moutai - **Ticker**: 600519.SS - **Reporting Period**: 3Q25 - **Report Date**: October 29, 2025 Key Financial Metrics - **Total Revenue**: Rmb39.8 billion, up 0.3% YoY - **Net Profit (NP)**: Rmb19.2 billion, up 0.5% YoY - **Moutai Spirits Revenue**: Rmb34.9 billion, up 7% YoY - **Series Spirits Revenue**: Rmb4.1 billion, down 34% YoY - **Direct Sales**: Rmb15.5 billion, down 15% YoY - **Wholesale Sales**: Rmb23.5 billion, up 14% YoY - **Net Profit Margin (NPM)**: 48.3%, up 0.1 ppt YoY - **Gross Profit Margin (GPM)**: 91.3%, up 0.2 ppt YoY Core Insights - **Sales Performance**: Moutai Spirits showed resilience with a 7% YoY growth, primarily driven by wholesale channels, while Series spirits faced a significant decline of 34% YoY due to policy impacts affecting upper mid-end spirits [1][2] - **Channel Dynamics**: Wholesale channel sales increased by 14% YoY, attributed to expedited shipments to distributors, while direct sales saw a decline of 15% YoY, with i-Moutai sales plummeting by 57% YoY [1][2] - **Direct Sales Contribution**: Direct sales accounted for 40% of total spirits sales in 3Q25, down from 43% in 2Q25 and 47% in 3Q24, indicating a shift in consumer purchasing behavior [1][2] - **Customer Advances**: Customer advances decreased by 22% YoY to Rmb7.75 billion, reflecting a less demanding prepayment pace amid anti-graft policy impacts [1][2][13] Additional Observations - **Expense Management**: Selling expense ratio was 3.1%, down 1.0 ppt YoY, likely due to a higher mix of Moutai spirits which require less marketing investment [2][10] - **Wholesale Price Trends**: The wholesale price of Original case Feitian Moutai decreased to Rmb1,700, which is approximately 29% of urban employee salary, indicating improved affordability compared to previous years [7][13] - **Future Outlook**: The company is expected to adjust its growth targets, now forecasting a 4% sales growth for 2025, down from an original target of 9% [7][8] Earnings Revision - **Earnings Forecast Adjustment**: Sales and NP growth estimates for 2025 and 2026 have been revised down by 1-2% due to weaker Series spirits and direct sales [8][24] - **Target Price**: The target price has been adjusted to Rmb1,691 from Rmb1,724 based on updated earnings estimates [8][24] Conclusion Kweichow Moutai's 3Q25 results reflect a mixed performance with strong wholesale growth offsetting declines in direct sales and Series spirits. The company is navigating policy challenges while maintaining profitability through effective expense management and strategic channel focus. Future growth targets are being recalibrated in response to market conditions.

Summary of China Spirits Industry Conference Call Industry Overview - The conference call focused on the China spirits industry, particularly the performance of various spirits companies in the second quarter of 2025 (2Q25) [1][2]. Key Points and Arguments 1. Performance of Super-Premium Brands - Super-premium brands like Kweichow Moutai and Wuliangye showed resilience, with Moutai achieving a 9% year-over-year (yoy) sales growth in 2Q25 [8][16]. - Laojiao's sales declined by 8% yoy, which was better than the expected decline of 17% [16]. 2. Upper-Mid-End Brands Struggled - Upper-mid-end brands faced significant sales declines, with companies like Yanghe and King's Luck reporting sales drops of 44% and 30% yoy, respectively [16]. - Fen Wine managed to maintain flattish sales, aided by its low-end segment [1]. 3. Margin Resilience - Despite a decline in average selling prices (ASP), many companies maintained stable gross profit margins (GPM), with most experiencing a contraction of about 1 percentage point yoy [9][10]. - The GPM for Moutai and Wuliangye's high-end segments outperformed their lower-end products [8]. 4. Operating Cash Flow Concerns - There was a notable deterioration in operating cash flow for upper-mid-end brands, while super-premium brands continued to maintain positive cash inflows [11]. 5. Customer Advances and Shipment Suspensions - Customer advances showed mixed results, with significant declines for Gujing and Jiugui, down 36% and 47% yoy, respectively [12][14]. - Shipment suspensions were noted across various brands, impacting customer advance balances and overall sales performance [12]. 6. Expense Control - Companies demonstrated disciplined expense management, with selling expense ratios rising by no more than 2 percentage points [10]. - Laojiao and Gujing reported declines in their expense ratios, indicating effective cost control measures [10]. 7. Market Sentiment and Future Outlook - There are signs of normalizing policy impacts on private consumption, with market sentiment shifting towards lagging stocks as investors adopt a "worst is over" perspective [2]. - The upcoming Mid-Autumn Festival and National Day are critical periods to monitor for consumption recovery and wholesale price trends [2]. Additional Important Insights - The spirits industry is facing challenges from anti-extravagance policies, which have affected consumer spending patterns [1]. - The overall retail spirits market is expected to see a decline of approximately 30% in August and a 15-20% decline during the peak season [7]. - The diversified product portfolios of certain brands have been crucial in supporting resilience amid market challenges [8]. Conclusion - The China spirits industry is currently navigating a complex landscape characterized by varying performance across different market segments. Super-premium brands are faring better than their upper-mid-end counterparts, and careful expense management is helping to mitigate some of the financial pressures. Future performance will heavily depend on consumer sentiment and the effectiveness of policy measures in stimulating demand.

Kweichow Moutai (600519.SS) 2Q25 Results Review Company Overview - **Company**: Kweichow Moutai - **Ticker**: 600519.SS - **Industry**: Consumer Staples (Alcoholic Beverages) Key Financial Results - **1H25 Results**: Sales increased by 9.1% year-over-year (yoy) to Rmb89.4 billion, and net profit (NP) rose by 8.9% yoy to Rmb45.4 billion, aligning with the full-year sales growth target of 9% yoy [1][3] - **2Q25 Results**: - Total sales reached Rmb39.7 billion, up 7.3% yoy, slightly below Goldman Sachs estimates (GSe) of Rmb39.9 billion [1][11] - Net profit was Rmb18.6 billion, a 5.2% increase yoy, which was 3% lower than GSe of Rmb19.1 billion [1][11] Product Performance - **Moutai Spirits**: Revenue increased by 11% yoy to approximately Rmb32.0 billion [9] - **Series Spirits**: Revenue declined by 7% yoy to about Rmb6.7 billion, impacted by a high base from the previous year (up 43% in 2Q24) and policy effects [1][9] - **Sales Channels**: - Wholesale sales grew by 1% yoy, while direct sales surged by 17% yoy, driven by non-standard Moutai sales [1][9] - Direct sales accounted for 43% of total spirits sales in 2Q25, compared to 46% in 1Q25 and 40% in 2Q24 [1][9] Margin and Expense Analysis - **Net Profit Margin (NPM)**: Decreased to 46.8%, down 0.9 percentage points yoy [1][9] - **Gross Profit Margin (GPM)**: Contracted by 0.3 percentage points to 90.5% [1][9] - **Selling Expenses**: Increased by 0.5 percentage points to 4.5% of revenue, while administrative expenses decreased slightly [1][9] Balance Sheet and Cash Flow - **Customer Advances**: Dropped by 45% yoy to Rmb5.5 billion, indicating reduced prepayment demand due to anti-extravagance policies [1][9] - **Note Receivables**: Increased significantly to Rmb2.8 billion from Rmb332 million a year ago, suggesting more support to the distribution channel [1][9] Price Trends and Market Outlook - **Wholesale Price Trend**: Original case Feitian Moutai's wholesale prices fell to around Rmb1,900 in late July but have shown slight recovery recently [1][9] - **Future Expectations**: Anticipated shipment increases for the Mid-Autumn Festival may lead to short-term volatility, but the company is expected to manage channel health effectively [1][9] Earnings Forecast and Valuation - **Earnings Revision**: Adjusted 2025-27E sales estimates down by 1-2% due to weaker Series spirits sales and margins [8][13] - **Target Price**: Updated target price is Rmb1,742, reflecting a 23.4x 2026E P/E [14][16] - **Current Valuation**: Trading at 19x/18x 2025E/26E P/E with a 2025E dividend yield of 3.8% [1][16] Risks and Considerations - **Key Risks**: Potential regulatory changes, environmental concerns, slower macroeconomic recovery, capacity constraints, and volatility in US interest rates [15] Conclusion - **Investment Recommendation**: Maintain Buy rating based on resilient sales growth and strategic management of market challenges [1][16]