兴业证券-贵州茅台-600519-Blocked Shipment Channel Drags Q319 Performance-191029

　　贵州茅台(600519)
　　Company Profile
　　Kweichow Moutai specializes in the production and marketing of liqueurs (Moutai). Besides, thegroup develops a manufacturing of beverages and packaging materials activity. China accounts for89.9% of net sales.(Source: Reuters)
　　Event
　　Kweichow Moutai Co.,Ltd. (the company) has announced its Q319 financial report, with revenue ofCNY 60.94 bn (+16.64% yoy) for the first nine months, and net profit attributable to stakeholders ofCNY 30.46 bn (+23.13% yoy). Its Q319 revenue stood at CNY 21.45 bn (+13.28% yoy), net profitattributable to stakeholders of CNY 10.504 bn (+17.11% yoy), and net profit after deductingnon-recurring items of CNY 10.503 bn (+17.11% yoy), slightly lower than market expectations.
　　Comments
　　The supply-side shipment channel was blocked, and its Q319 profit growth slowed down. Thecompany’s revenue and net profit growth came in at 13% and 17% respectively, slightly below marketexpectations. As the supply-side shipment capacity fell short, 1) the company did not solve theallocation problem of the 6000 tons liquor from distributors between the joint-stock company andthe parent company until the beginning of August. The financial report showed the direct sale volumewas about 1100 tons for the first three quarters, and direct sale accounted for 5.1%. Among which, itsH119 direct sale volume was about 600 tons, and the Q319 number registered 533-570 tons. Thelanding speed of direct sale was a bit slower, but its quarterly speed was on the rise. 2) Thecompany’s distributors further declined, resulting in shipment capacity dropped. In H119, thedistributors reduced 99, and in Q319, the number increased by 14, as a result, the sharp decline ofdistributors made shipment capacity decreased.T he company’s financial indicators are stable, and its advance receipts and cash flow are in a benignmanner. 1) In Q319, the company’s advance receipts was CNY 11.26 bn, rising 0.70% yoy, down 8.17%qoq. The decline in the third quarter was due to off season. 2) The cash inflow from sales posted atCNY 22.84 bn (-0.73% yoy). The operating cash inflow indicator was good, and the sharp decrease innet amount of operating cash flow was due to refunded deposits.
　　The expense ratio was stable, and its profitability increased on a yearly basis. The company’s Q319gross profit margin was 91.83% (Q1:92.11%/Q2:91.57%), down 66bp yoy, which was mainly due toQ319 cost growth of 22.47%, 9pct higher than revenue growth, dragging the gross profit margin. Thesales expense ratio/administrative expense ratio was 2.81%(-47bp yoy)/6.24%(+13bp yoy)respectively. The Q319 net profit margin was 52.3%(Q1:55.05%/Q2:52.01%), up 1.09% yoy, which wasowing to improved channel structure and efficient expense ratio control.
　　The company’s Q319 direct sales volume has accelerated, and its Q4 performance is worth expecting.The total amount of direct sales this year shall be about 7,000 tons (the originally planned 2,000tons+6,000 tons cut from distributors last year-2,000 tons allocated to the parent company+ 1,000tons cut from over 100 distributors this year). However, so far the company only put 1,100 tons intothe market, accounting for 15%, due to the stagnation of supply to distributors in H119. Thecompany’s Q319 financial report disclosed that the direct sales shipment was as close as 600 tons,showing acceleration of direct sales. And recently, according to grassroots research, 1,000-2,000 tonsliquor will be put into direct-operation stores in Q4, 500-1,000 tons into shops and supermarkets.With nationwide corporate group-purchase and procurement in Guizhou Province, 2,000 tons areabout to be in the market. As such, its Q419 performance is well worth expecting.
　　Earnings forecast and investment recommendation
　　We are optimistic about Moutai baijiu’s strong demand and its good brand image, and channelupgrade will bring about value enhancement. This year saw the company’s channel reform startingfrom Q318. The company has canceled 500-600 distributors since 2018, resulting the tight shipmentin the wholesale channel. The pain from channel reform will be relieved, as the company put directsale mode into practice. Besides, the channel restructuring will strengthen the company’s control onMoutai baijiu’s price, improve price/ton, increase EPS, which is conducive to the company’sdevelopment in the long haul. We maintain the previous earnings forecast, and estimate thecompany’s EPS to be CNY 34.40/42.32/48.75 for the year 2019/20/21, implying a P/E ratio of35/29/25X. We maintain”Outperform”rating for the company.
　　Potential risks: slower-than-expected macroeconomic development; less-than-expected direct salevolume; higher wholesale price