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At present, the liquor industry is at a critical turning point, how long will the decline in liquor prices last?Is there a possibility of a reversal in the market?What is the key point of the reversal?How should the reasonableness of the liquor industry and the market size be evaluated?Has the investment logic of liquor companies changed?
On December 15, 2023, at the "Barron China Theme Closed-door Meeting: Liquor Investment in a Downward Trend", two private equity managers - Ma Beiyan, Chairman of Chengpu Assets, and Du Kejun, Investment Director of Guosheng Yusheng, shared their latest insights. The following is a compilation and confirmation of guest speakers from the Barron China Institute.
Ma Beiyan: The general trend of structural growth in the liquor industry has not changed
Ma Beiyan: He has served as an industry researcher at Ping An and the deputy general manager of the industry company department of Ping An Research Institute. He joined Nanfang in September 2005 and successively served as the chief analyst of the company's investment department, the manager of Nanfang Steady Growth, and the manager of Nanfang Steady Growth. He is currently serving as the legal representative of Chengpu (Shenzhen) Asset Management. Ph.D. in Agronomy, Chinese Academy of Sciences.
The liquor industry has shown a general trend of structural growth over the past few decades. Despite the decline in production, the scale of market consumption is gradually increasing. This is mainly due to the persistence of liquor. However, recent changes in the economic environment have put growth under pressure and have been adjusted for a while. However, in the long run, the momentum of the first volume of liquor to shrink and rise is still there, and the general trend has not changed.
The liquor industry has been undergoing adjustment in three directions: industry structure, product structure and profit structure. In terms of industry structure, with the concentration of high-quality enterprises, the output of the industry has shrunk, but the market has concentrated on the eight famous wines and listed companies, which has increased the concentration of the industry. In terms of product structure, with the rise of Moutai, the share of sauce-flavored liquor has gradually increased, and although the strong flavor liquor occupies a dominant position, the market share is gradually shrinking. In terms of profit structure, sauce-flavored liquor has become the main source of profit, although its output only accounts for 10% of the industry, but the revenue and profit account for more than 30% and 40%.
As a consumer product, the cycle of liquor is closely related to the stage of economic development. It is currently in a period of adjustment. At the same time, the status of liquor in social situations also determines its consumption demand. Young people may not drink baijiu because of their lack of spending power, but as they enter middle age and their spending power increases, the demand for baijiu consumption will also increase. In addition, the financial attributes of some liquor provide a guarantee for its long-term development.
Despite some challenges in the liquor industry, the future of liquor investment remains full of opportunities in the long run. Especially after the adjustment of high-quality liquor like Moutai, now is a good time to allocate assets. Some people are worried that the volume and price trend of the liquor industry may have an unfavorable trend, which will affect the investment in liquor. For a traditional industry such as liquor, there are structural opportunities for high-quality companies, and it is not particularly important whether the industry's volume and price trend is an inflection point. For unlisted enterprises, the volume and price trend of the industry may be a more important issue, because the competition in the industry has entered a process of increasing concentration, and weak enterprises are constantly being eliminated. However, for the companies that have already been listed, most of them are famous and high-quality liquors, and it is expected that they will still maintain the trend of volume and price growth, and will gradually recover after adjustment. Historically, the number of tons of liquor and sales volume has indeed driven the share price of Moutai, and the trend of volume increase and price increase of Moutai and other companies has not changed in the future.
In general,While the return on investment in the liquor industry may not be able to sustain the high levels of the past, baijiu is still attractive as a long-term investment option. Once the market improves, both dividend yields and profit growth in the liquor industry could make it a good asset.
Du Kejun: Looking forward to the soft landing of the "** system", being wary of a hard landing, and seizing structural opportunities
Du Kejun: Former partner and manager of Gray Assets, and currently the investment director of Zhuhai Guosheng Yusheng Private Equity. China Academy of Launch Vehicle Technology has been engaged in the overall design of rockets for 6 years, CCTV2 chief market special guest, Xueqiu 2020 Top Ten Cutting-edge, senior research expert in the field of consumption. Its management ** has won the Golden Bull Award for four consecutive years. Ph.D. in Computer Technology and Artificial Intelligence.
About five years ago, I went deep into the social software and liquor industry and wrote an article - "Two Jewels in the Social Crown", among which, Baijiu was praised by me as a pearl in the social crown. China is a humane society, and baijiu can play a very important role in social situations. Chinese people will always choose the best and most expensive liquor they can afford to entertain guests in social situations.
However, entering 2023, we observe that the liquor industry is undergoing a structural adjustment. Many brands have shrunk in all three areas: factories, distributors and consumers. While ultra-premium baijiu is barely balancing at these three ends, many other second- and third-tier brands are actually shrinking in all three. This means that the liquor industry as a whole is in a downward channel.
In this context, structural adjustment has brought only structural opportunities. What happens to the market when a dealer's inventory accumulates to a point where they can no longer afford to stock up more?This is something we need to pay close attention to.
* Whether the system can support or even continue the logic of inflation is the issue that I am most concerned about. Although, in terms of the total amount of liquor, changes in demographic structure, changes in consumption habits and the elimination of market competition may lead to a decline in total liquor consumption. However, from a long-term point of view, at least 7 to 10 years, or even longer, inflation must play a role, but for investors, we can't simply and irresponsibly talk about 10 years, what we need to think about is sub-high-end liquor, that is, ** in the range of 500 800 yuan or 300 800 yuan liquor, whether their ** can continue the past growth logic?Especially in the next two years.
In each cycle, the final problem resolution is related to the dealer. When the inflection point of the cycle is approaching, we need to digest the inventory while maintaining the best stability, and then enter a new stage of volume and price support. However,The problem now is that we don't know whether to stock in the future, or by time. I call the former a hard landing, and the latter a soft landing.
I'm optimistic about Moutai itselfBut for the investment of Moutai**, I suggest that everyone remain cautiously optimistic. Taking the 2018 valuation as a reference, if Wuliangye's TTM returns to 15 times or even lower than that time in this round of adjustment, then Moutai's TTM may fall to around 20 times, which means another 30% drop from the current 30 times. Therefore, I am bullish on the fundamentals for a long time, but the margin of safety needs to be considered, especially to continue to increase positions with a little caution. After all, the fundamentals of the entire liquor industry now, I think, are even worse than in 2018.
Some time ago, Moutai's price increase made everyone happy, because everyone hoped that Moutai's batch price would continue. However, what we need to see is that the lot price of other brands is still decreasing. In addition, although Moutai has raised its price this year, due to its high proportion of direct sales, the impact of the price increase on next year's profit margin is actually limited. Also, the price increase only brings back the profits of the dealers, but from the perspective of the three links of factories, dealers, and consumers as a whole, even Moutai has not grown, and even the volume and price of terminal consumption are declining. It has only thickened the profits of listed companies, while the other two links are shrinking, which is not particularly healthy. There are a lot of things that need to be looked at further.
Assuming that Moutai achieves a net profit of 100 billion yuan by 2025, then a price-to-earnings ratio of 30 times corresponds to a market value of 3 trillion yuan. In the short term, we need to focus on industry risks. But if investors are willing to hold until 2026 or 2027, then they can consider buying around the market value of 2 trillion. Moutai has performed well in structural liquors and series liquors, and its production capacity is also expanding. Although the channel problem has been criticized by everyone in the past, after the latest management took office, a series of measures have been done well and there has been significant progress. Overall, I don't think it will fall below the 2018 valuation, when the TTM was 22x. This is the bottom of my mind, and there is a high probability that it will not be reached. However, for other brands of wine companies, I am not sure at the moment, and I need to track the performance of next year.
In general, we need to expect a soft landing and be wary of the risk of a hard landing. At the same time, look for value in structural opportunities.
*The above opinions are those of the guests and do not necessarily reflect the views of Barron's, nor do they constitute investment or financial advice of any kind.
Text丨Barron China Research Institute Writer Wang Jing
Editor丨Huang Haichuan
Copyright Notice: Original article by Barron China Research Institute, without permission, shall not **.
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