Morningstar | Moutai's Preliminary 1H18 Results Were Largely in Line; Our CNY 730 FVE Is Intact
Wide-moat Kweichow Moutai posted preliminary first-half 2018 results that were largely in line with our expectations, with revenue up 37% and net profit up 40% year on year, respectively. We maintain our fair value estimate at CNY 730 per share and retain our wide moat and stable trend ratings, as we believe the company will be a long-term winner amid accelerating premiumization and will continue to dominate the premium baijiu segment and enjoy the highest returns on invested capital in the industry. We view the shares as fairly valued at current levels.Moutai's first-half 2018 revenue and net profit increased 37% and 40% from last year, respectively, to CNY 35 billion and CNY 15.75 billion. This implies the company's second-quarter revenue growth was 43% year on year, accelerating from the first-quarter's 32%, thanks to strong volume growth and higher average selling prices. The implied second-quarter net profit rose 41% year on year to CNY 7.24 billion. The 46% net profit margin was 200 basis points higher than our 44% forecast, which we believe was due to a lower operating expense ratio.
Kweichow Moutai is engaged in the manufacture and sale of "Guizhou Moutai" series distilled spirits; manufacture and sale of beverages, food and packaging materials; development of anti-counterfeiting technologies; and research and development of relevant IT products. Through its subsidiaries, Co. is also engaged in the wholesale of agricultural vice-local products, building materials, decoration materials, metal materials, machineries, electronic products, telecommunication products, hardware, rubber products, general merchandises and furniture. Co.'s products include millesimes liquor, gift liquor, common liquor and other liquor series.
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