Is Maotai still fragrant? Zijin Chen increases holdings, Duan Yongping firmly "defends"

As the wholesale price of Baijiu remains soft during the Mid-Autumn Festival, on September 18th, Baijiu stocks collectively fell, with Guizhou Maotai dropping below 1300 yuan per share, nearly halving compared to the high point at the beginning of 2021. On that day, well-known writer Zijin Chen once again increased his holdings in Maotai, while investment tycoons such as Duan Yongping also "supported" Maotai recently. However, looking at the trends of public funds, they are still continuously reducing their holdings of Maotai, with several well-known fund managers continuing to reduce their positions in the second quarter.

Stock Price Hits a New Stage Low

On September 18th, Baijiu stocks trended lower, with Wuliangye, Jiugui Liquor, Shede Winery, and others generally falling. Guizhou Maotai fell by 2.85%, closing at 1266.9 yuan per share, breaking below 1300 yuan per share and hitting a historical low since October 2022. The latest market value has dropped below 1.6 trillion yuan, and the price-earnings ratio has fallen below 20 times. In terms of funds, Maotai ranked first among the top 20 stocks with the largest net selling by main funds on that day, with a net outflow of 884 million yuan in main funds, and a cumulative outflow of 2.349 billion yuan in main funds over the past 3 days.

Since May this year, Maotai's stock price has continued to decline, with a drop of over 20%. Looking at a longer period, Maotai's decline since August 2023 has exceeded 30%, almost halving compared to the high point at the beginning of 2021.

With the Mid-Autumn Festival and National Day approaching, the peak consumption season for Baijiu has not arrived. During the Mid-Autumn Festival, Maotai experienced a cold spell, with the wholesale price of Feitian Maotai continuing to decline. Regarding the reasons for the adjustment of Maotai's stock price, the Huaxia Fund Strategy Team believes that it may be due to weak sales data during the Mid-Autumn Festival and National Day, combined with the adverse impact of weak macroeconomic demand, leading to a continuous downward revision of market pessimistic expectations for sector profits.

Generally, the Mid-Autumn Festival is one of the two key observation points for whether Baijiu companies can achieve their annual sales targets. Currently in the channel stocking and sales period of the Mid-Autumn Festival and National Day, feedback from the market terminals shows that in the past two weeks, the prices of Maotai Feitian in bulk and retail have both declined. The market is concerned that poor sales and inventory digestion may affect the annual performance expectations.

However, after this round of adjustments, the short-term pressure on the industry may have been released, and listed liquor companies are taking active actions to ensure the completion of their annual growth targets. The long-term investment value will gradually be reflected after expectations improve. The Dongxing Securities Co., Ltd. team believes that the core reason for the decline in sales this time is the weakening external demand, as well as a decrease in consumption frequency and grade. In addition, factors such as stricter industry supervision and typhoon weather in the East China region also have certain impacts.

Divergence in Increasing and Decreasing Positions

As Maotai's stock price hits a new stage low, supporters of Maotai remain bullish. On the afternoon of the 18th, well-known writer Zijin Chen revealed his additional purchases, adding two batches of Guizhou Maotai, totaling about 636,000 yuan. He stated that his current Maotai holdings are floating at a loss of about 20%.

However, Zijin Chen mentioned that his additional purchases were very restrained, and there is currently a high level of uncertainty. He believes that the factors for reversing the trend are either the market rapidly falling to create room for speculation, or more major shareholders increasing their holdings, and he is not worried about missing out. Another tycoon who has held Maotai for a long time, Duan Yongping, also "supported" Maotai on social media recently: "Looking back in 20 years, Maotai should be much better than gold

However, from the perspective of public funds, the reduction of Maotai holdings is ongoing. Wind data shows that by the end of the first half of 2024, Guizhou Maotai has slipped to the third place in terms of market value of public fund holdings, behind China Petroleum and Industrial and Commercial Bank of China, with a reduction of 8.01 million shares and a decrease in market value of 239.1 billion yuan compared to the first quarter. Compared to the peak in 2021, public funds have reduced their holdings by 31.04 million shares, with a decrease in market value of 628.1 billion yuan, a decrease of about 31%.

In addition to passive increases in holdings by index funds such as the CSI A50 ETF and the SSE 300 ETF, only a few public funds increased their holdings of Maotai in the second quarter, while many consumer-themed funds managed by well-known fund managers reduced their holdings.

For example, the Yi Fangda High-Quality Selection Fund managed by the well-known fund manager Xiao Nan reduced its holdings of Maotai by 30.56 thousand shares over three years, with a decrease in market value of 570 million yuan; the Fuguo Tianhui Select Growth Hybrid Fund managed by the well-known fund manager Zhu Shaoxing reduced its holdings by 26.99 thousand shares; the Huatai Value Select Hybrid Fund managed by the well-known fund manager Lao Jienan reduced its holdings by 18.83 thousand shares; funds such as Zhongou New Blue Chip and Zhongou New Trend managed by Zhou Weiwen, Yinhuaxinyi and Yinhuaxinxing managed by Li Xiaoxing and Zhang Ping, held for one year, all reduced their holdings by more than 90 thousand shares.

## **Impact on Pricing Power**

Regarding the reasons for reducing holdings of high-end liquor, Jiao Wei, a well-known fund manager at Yinhuajijin, explained in the semi-annual report that the consumer upgrade industry represented by high-end liquor has become a representative business model of high ROE, high gross profit margin, and high moat in the past few years. However, it is currently at a new economic transformation juncture, where these successful business models are facing challenges both externally and internally.

To some extent, the higher the gross profit margin and pricing power in the past, the more likely they are to be impacted and questioned in the new economic model. In this context, valuation adjustments may precede profitability itself.

However, Jiao Wei does not agree with the popular belief that "high-end liquor will enter a historical junk investment period." He stated that consumer moat enterprises represented by high-end liquor still have significant advantages in cash flow and user stickiness, and will wait and observe, waiting for these companies to reach a turning point in inventory and maturity to move towards dividends to reward investors with investment opportunities.

Wu Xingwu, manager of the GF Dynamic Allocation Hybrid Fund, stated that for high-end liquor brands, brand has always been the most valued competitiveness, but the original logic chain has been disrupted at present, as evidenced by the phenomenon of Maotai's price drop, indicating the need to reevaluate the macro environment's friendliness towards brand consumption.

Authors: Zhang Shulin, Ge Yao, Source: China Securities Journal, Original Title: "Is Maotai still fragrant? Zijin Chen increases holdings, Duan Yongping firmly 'defends'"