Anyone can fall, only Maotai is the "unbreakable" one

Hello everyone, I am Dolphin Jun!

On the evening of Tuesday, April 2, Beijing time, Kweichow Moutai (贵州茅台) released its 2023 annual report. Both actual revenue and profit were slightly higher than the previous year's forecast. The total revenue and net profit delivered in 2023 achieved a 19% growth, exceeding last year's planned target of 15%. Moutai's "magic wand" ability is unmatched globally.

Specifically:

1. No slack, a small peak in growth in the fourth quarter

Marginally, the liquor revenue in the fourth quarter reached 44.4 billion yuan, with a year-on-year accelerated growth of 20%. Moutai liquor distribution price increases + series of liquors complement each other, achieving outstanding performance in the fourth quarter.

In terms of profit, the net profit in the fourth quarter was close to 22 billion, with a year-on-year growth rate of 19%, basically in sync with revenue, reaching nearly 75 billion for the full year. Despite the increase in gross profit margin, the final profit did not rise significantly, mainly due to the increase in sales expenses and consumption tax rates, weakening the release of gross profit to net profit.

2. Distribution price increases + direct supply, no one is more stable than Moutai

Looking at the entire year of 2023, the 20% distribution price increase not only locked in the revenue growth for 2024, but also boosted the revenue in the fourth quarter of 2023 itself.

In addition, although there was no increase in the fourth quarter, the proportion of direct sales continued to expand throughout the year. The direct sales channel increased by less than five percentage points in sales volume in 2023, achieving a six percentage point increase in revenue share, with the overall revenue share reaching 46%, a dominant presence.

In this situation, Dolphin Jun estimates that the gradual increase in the proportion of direct supply of Moutai liquor may slow down in the future, with a high probability of slowing down by 2024 at the latest.

4. Series liquors enhance the gross profit margin

Regardless of the external environment, macroeconomic cycles (PPI), industry inventory cycles, or competitive landscape, Moutai liquor's gross profit margin remains stable at 94%, while the real fluctuation lies in the series liquors.

In the past two years, with relatively high growth rates of series liquors and marginal price increases, the gross profit margin of the entire listed company has also steadily increased.

5. In terms of growth certainty, no company is more stable than Moutai

The company has set a 15% growth target for 2024, exactly the same as 2023. Since the sales volume of Moutai liquor for the current year was already established five years ago through the base liquor production volume, there was no significant increase in base liquor sales volume in 2019 and 2020.

A 15% revenue growth is clearly achieved through price increases: the 20% distribution price increase before the year has already locked in most of this year's revenue growth. Even if the total sales volume does not increase, by slightly increasing the proportion of direct sales, a 15% revenue growth for the whole year is basically achievable with easeDolphin's overall view:

Perhaps among all companies, Maotai is probably the most uninteresting one, never planning to generate income, delivering on its promises, and being able to turn as much revenue into profit as possible. In terms of the stability of revenue growth and the ability to achieve revenue targets, Maotai ranks second to none.

Moreover, Dolphin has noticed that in years with relatively poor macroeconomic confidence, as the cornerstone of A-share consumption, Maotai usually strives to exceed targets to boost confidence.

In a situation where EPS growth and valuation improvement can drive stock prices, Maotai's EPS growth path is completely transparent, stable, and predictable. To earn excess profits from Maotai, one can only enter when the PE ratio is low.

In this way, investing in Maotai actually becomes exceptionally simple - "when others fear, I am greedy; when others are greedy, I am fearful." Do not chase when the PE ratio is high, but enter when it is low. This is the only time when Maotai's valuation can have significant upward potential, whether it is due to macroeconomic narratives, changes in peripheral interest rates, or industry rumors (such as plasticizers, three public consumptions, etc.). Because only at such times can Maotai's valuation have a chance for a significant increase.

Currently, Maotai's forward PE ratio is close to 25 times, approaching but still not reaching the low of around 20 times set during the 2020 epidemic. It can only be hoped that Maotai's PE ratio can go lower and lower, providing an opportunity for ordinary people to get on board.

Data source: Wind, Dolphin Research Institute

The following is a detailed interpretation of the financial report:

I. Anyone can collapse, only Maotai is an "indestructible" figure

Driven by the price increase in Maotai liquor distribution and the accelerated growth of its series of liquors, Maotai's total revenue in the fourth quarter of last year reached 45.2 billion, with a year-on-year growth rate of 20%, and net profit almost doubled year-on-year, with a growth rate of 19%.

However, the cash income in the fourth quarter (prepaid value + main income) slowed down to 16% compared to the third quarter, mainly due to the negative growth rate of distributor prepayments, especially in November when the price was raised, Maotai did not receive much payment balance from distributorsFrom the perspective of profit margin, due to the increase in distribution prices, the company's gross profit margin has further increased to 93%. However, the net profit margin has decreased by nearly one percentage point as the consumption tax and sales expenses in the fourth quarter have risen year-on-year, eroding the increase in gross profit margin.

2. The most common strategy for Moutai's price increase

With distribution channels still accounting for nearly 80% of sales, starting from November 1st, Moutai raised the ex-factory price of Feitian and Wuxing Moutai for distributors for the first time since 2018, increasing the shipment price by 20% from 969 to 1169 yuan.

The price increase in distribution has visibly increased the revenue of Moutai's listed company: the sales revenue of alcoholic beverages to distribution channels has achieved a 21% growth in the fourth quarter after hovering around zero growth for four to five consecutive years, keeping pace with the growth in direct sales.

At this point, it can be said that among the few consumer goods covered by Dolphin, the most common and circuitous strategy is Moutai's price increase on a per ton basis under supply constraints, including but not limited to:

Direct price increase to distributors;
Allocation to direct sales, indirect price increase: retail customers sell at 1499, while wholesale customers used to sell at 969;
The same small bottle of liquor, indirectly increasing the per ton price;
Increasing the proportion of sales of non-standard Moutai such as Zodiac Moutai, indirectly increasing the per ton price;

Whether overtly or subtly, behind the various price increase strategies is simply this: if the ex-factory price is considered as the planned supply of the company's administrative pricing (1169), and Moutai's wholesale price is considered as market pricing behavior (currently 2800-2900).

This price difference illustrates a simple question: if Moutai expands, removes all constraints, shifts entirely to direct sales based on market prices to achieve performance, Moutai's revenue should be twice the current level, and the additional revenue does not require a proportional increase in marketing and administrative expenses, leading to higher profit release.

Of course, Moutai is unlikely to do this.

With such a high price difference between ex-factory and distribution channels, all methods to ultimately achieve a comprehensive price increase are just strategies.

This year, Moutai's listed company has planned a 15% revenue growth for the whole year, as well as completing nearly 6.2 billion RMB in fixed asset investment.Under this mindset, Maotai's annual revenue growth guidance only reflects the pace at which the listed company wants to release its controlled revenue and profit, rather than its true revenue and profit growth capabilities.

After all, looking at the supply side: simply assuming that the base liquor from 4 to 5 years ago was the sales volume for that year, the production of Maotai liquor's base liquor in 2019 and 2020 has basically remained unchanged, so it can be roughly judged that the increase in Maotai liquor supply in 2024 should be very limited.

However, by implementing a combination of measures on the demand side, achieving revenue growth of over 15% is a piece of cake:

a) Starting from November last year, directly raised prices by 20% for 80% of the distribution sales volume;

b) Further increasing the proportion of direct sales this year: taking 2022 as an example, when Maotai liquor sales growth was only 4.5%, by increasing the proportion of direct sales, Maotai easily achieved nearly 17% year-on-year revenue growth.

III. Accelerating Online Direct Sales Shipments

Since 2019, the method of increasing the proportion of direct sales volume to generate high revenue has been used. With the price increase in November this year, it is estimated that the subsequent period should come to an end. From the slowdown in direct sales revenue growth in the previous four quarters, and the synchronization of growth rates with distribution revenue, it can be seen that the phase of significantly allocating production to direct sales channels has basically come to an end.

However, direct sales are not idle, among the two direct sales channels offline and online, Maotai is continuously increasing the proportion of online direct sales. By the fourth quarter of 2023, the revenue from online direct sales, mainly led by iMoutai, accounted for 44% of the total direct sales revenue. This aggressive online direct sales approach should have a higher impact on Maotai's promotional effects (increasing APP DAU) and logistics distribution efficiency.

In the end, in 2023, the direct sales business, with a 20% purchase quota, contributed 46% of sales revenue. The average selling price per ton in direct sales is three times higher than wholesale +, which is not only higher for Maotai itself, but also related to the fact that Maotai liquor is the main product in online sales.

In terms of controlling the distribution channels, after the reorganization in 2019, the number of Maotai distributors in China has remained relatively stable over the past two years, with annual reductions mostly in single digits.

But do not simply think that with fewer distributors and less production quotas allocated to distributors, Maotai distributors will sufferAs the ex-factory price and batch price have been increasing since 2019 while Moutai has not raised prices for these distributors, the remaining distributors are actually making more money. The widening price difference has long made up for the reduced supply given to these distributors.

In fact, it is easy to see at this point: the issue of supply allocation between direct sales and distributors is more about whether the huge price difference between Moutai's ex-factory price and market price is for distributors to profit from or for consumers to stockpile. Of course, it also involves balancing end consumer demand and distributor interests.

III. Moutai Series Wines Add to the Glory

Moutai has always been driven by both "Moutai Liquor" and "Series Wines". In the fourth quarter, not only did Moutai Liquor's growth rate increase under price hikes, but the series wines also added to Moutai's success. The sales of series wines in the fourth quarter reached 5 billion RMB, with a year-on-year growth of 48%, showing very good performance.

The addition of glory from series wines is not only reflected in revenue, but the performance of series wines in 2023 is also good in terms of both unit price and gross profit margin improvement speed.

Comprising brands like Wangzi, 1935, Hanjiang, and Laimao, the series wines have seen an increase in both unit price and gross profit margin, with the gross profit margin reaching 80% in 2023, showing outstanding performance.

IV. Marketing Expenses Are Soaring?

Moutai, which contributes 85% of revenue, has a gross profit margin of 94% for Moutai Liquor, which has remained stable for years. With the continuous increase in unit price and improvement in gross profit margin for series wines, Moutai's gross profit margin is basically above 90% and steadily increasing, reaching 93% in the fourth quarter.

Normally, for products like Moutai with supply-side restrictions, sales expenses are not high; aside from the consumption tax paid, low research and development expenses, and the negative financial expenses created by having a lot of cash on hand, Moutai's main expense item is management expenses.

However, in the past two quarters, especially in the fourth quarter, the increase in marketing expenses has been overly exaggerated, with a growth of over 40% in the third quarter and nearly 80% in the fourth quarter, leading to marketing expenses in the fourth quarter reaching 3.5%, one percentage point higher than the same period last year, affecting profit release.

Moutai explained that the increase is mainly due to advertising and market expansion expenses, but other miscellaneous marketing expenses have also increased significantly, which is quite strange. This part has eroded profits by around 500 million, coupled with the increase in consumption tax, resulting in the inability to fully convert the increased gross profit in the fourth quarter into net profit attributable to the parent company, with the growth rate of net profit basically synchronized with the revenue growth rate