[买入评级]KWEICHOW MOUTAI(600519)MARKETS RESEARCH:3Q PREVIEW:STRONG SALES GROWTH WITH HIGH VISIBILITY;.

时间:2017年11月15日 10:00:12 中财网


High visibility for strong 3Q sales growth
We forecast Moutai's sales to grow by 40% in 3Q17, which is an accelerationfrom 36% growth in 1H17. We believe the growth visibility is high, given:
During Moutai's communication meeting with distributors on August 28 (the "828 meeting"), Moutai announced that it will supply 6,200tons of liquor (including 5,600 tons of "Feitian Moutai" and 600 tons ofother SKUs) between August 15 and September 30, to meet the strongdemand during National Holiday and Mid-Autumn Festival. Accordingly,we estimates the total supply in 3Q17 to be around 8,700 tons, implying70% yoy volume growth (on ex-factory delivery) compared to the 5,000tons supplied in 3Q16.
This is further evidenced by our recent channel checks in Shanghai andShenzhen. Distributors indicated that Moutai began to increase supplyfrom Aug 15 and the distributors have used up their 2017 procurementquotas. Some distributors have begun to use 2018 quotas to put in orders.
We expect Moutai to book 40% sales growth in 3Q and the rest willbe booked in "advance from customers", which will be recognized asrevenue in other quarters.
Efficient channel operations to reduce channel de-stocking riskDuring the 828 meeting, Moutai's management clearly stated its determinationto crack down on channel stocking. Three key measures include:
The company will increase its supply to stabilize the retail price, as Moutaihas done during Aug 15 to Sep 30;
Management indicated clearly that it will not raise retail prices in peakseasons (Mid-Autumn and Chinese New Year);■ It requires all distributors to put 30% of volume on the Moutai cloudplatform with a retail price at Rmb1,299, which will increase supply forindividual demand if implemented strictly.
In our view, Moutai's main risk is from channel de-stocking when retail prices risetoo much, as happened during 2013 to 2015. We think Moutai's managementhas learned from the last cycle, and the three measures should help to reduce distributors' restocking demand, avoid future de-stocking risk, and ultimatelytransform Moutai into a more stable company and less of a cyclical stock.
Market to revise up earnings estimates after 3Q resultWe have revised up 2017-19 earnings estimates by 4-9%, which is to factor in itsincreasing supply from 2H17 and more sustainable growth following its recentchannel operations. For 2017, we forecast it to report 34% gross sales growthand 38% earnings growth, which should beat market consensus forecasts at25%/27% for sales/earnings (based on Wind)。 For 3Q17, we forecast 40% salesgrowth and 34% earnings growth, and we expect the market to begin to reviseearnings after the results release.
Revising up TP to Rmb610; reiterating BuyBased on our new earnings forecast, we revise up our TP by 11% to Rmb610,based on a DCF methodology (factoring in 9.5% WACC and a 2% TGR)。 Moutai'sshare price has risen 55% YTD in 2017, but based on our new earnings forecast(which has high visibility), it currently trades at 22x 2018 P/E with 25% earningsCAGR in 2016-19E. We reiterate Buy. The next catalyst would be strong 3Qsales growth. Main downside risks: shorter-than-expected restocking cycle;government policy changes; food safety incidents.
□ .M.a.r.k. .Y.u.a.n./.A.n.n.e. .L.i.n.g  .德.意.志.银.行.股.份.有.限.公.司
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