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Brokerages are unanimously optimistic, funds are desperately fleeing, what is the truth? Cold thinking in the liquor industry|Wind and cloud theme

Brokerages are unanimously optimistic, funds are desperately fleeing, what is the truth? Cold thinking in the liquor industry|Wind and cloud theme

Is the basis for further price increases of high-end liquor solid?

Brokerages are unanimously optimistic, funds are desperately fleeing, what is the truth? Cold thinking in the liquor industry|Wind and cloud theme

Author | beyond

Edit | Xiaobai

On May 24, 2023, the Wande liquor index closed at 7,013 points, down 19% from 8,627 points on February 22 this year.

Brokerages are unanimously optimistic, funds are desperately fleeing, what is the truth? Cold thinking in the liquor industry|Wind and cloud theme

(Source: Wind)

At the same time, the data of the market capitalization APP "My Stock-Industry" shows that the A-share liquor sector is in a state of significant capital outflow: liquor has become one of the several sectors with "serious blood loss" in the market in the past three months.

Brokerages are unanimously optimistic, funds are desperately fleeing, what is the truth? Cold thinking in the liquor industry|Wind and cloud theme

(Source: Investment tool "Market Capitalization" APP)

In contrast to the trend of real money in the market, the seller's research team is generally optimistic about the liquor industry, and positive expressions such as "liquor consumption recovery" and "industry prosperity recovery" can be seen everywhere, and even directly shouted "the bottom pushes baijiu" to express strong optimism about the subsequent market of liquor.

Brokerages are unanimously optimistic, funds are desperately fleeing, what is the truth? Cold thinking in the liquor industry|Wind and cloud theme

(Source: Wind)

On the one hand, there is a cold trading atmosphere, on the other hand, the sellers who have always been unrestrained and untrustworthy solicit enthusiastic and hawking one after another, and ordinary investors are inevitably confused between cold and hot.

Fengyunjun is also curious, is there really a huge expectation gap in the liquor industry as the seller team said? Which is closer to the industry facts, the direction of capital and sell-side research?

Next, Fengyunjun will start from the fundamentals of the liquor industry and find the answer with everyone.

The total volume declines, and the stock competes

According to the China Liquor Association, in recent years, China's liquor industry has entered a period of deep adjustment and deep competition.

(Source: China Liquor Industry Association's 2023 White Paper on Chinese Liquor Consumption)

It is manifested in the disappearance of many alcohol consumption scenarios, poor operation of market channels, difficulty in sales, inventory pressure, and tight cash flow.

(Source: China Liquor Association)

From the perspective of overall production, since 2016, the annual production of liquor in China has declined year by year, and the total output of liquor enterprises above designated size in 2022 will be 6.71 million kiloliters, only half of the high point in 2016.

Brokerages are unanimously optimistic, funds are desperately fleeing, what is the truth? Cold thinking in the liquor industry|Wind and cloud theme

(Source: National Bureau of Statistics)

Correspondingly, after the number of liquor enterprises above designated size peaked in 2017, it began to decrease year by year. In 2022, the number of domestic liquor enterprises above designated size will be 963, a decrease of 40% from 1,593 in 2017.

Brokerages are unanimously optimistic, funds are desperately fleeing, what is the truth? Cold thinking in the liquor industry|Wind and cloud theme

(Source: National Bureau of Statistics)

It can be said that both ends of supply and demand are contracting, is it "supply-side reform", industry capacity reduction plays the leading role, or sluggish consumption, under the nest there is a complete egg is the right way?

With the significant reduction in the number of liquor enterprises and the decline in production and sales year by year, the competition in the industry has further intensified, resulting in the expansion of losses year by year: the proportion of losses of liquor enterprises above designated size has increased from 6.5% in 2015 to 17.6% in 2022.

The characteristics of "total volume decline, stock competition" in the industry are prominent.

Brokerages are unanimously optimistic, funds are desperately fleeing, what is the truth? Cold thinking in the liquor industry|Wind and cloud theme

(Source: China Liquor Association)

There may be old iron will say: the good performance of listed liquor companies in recent years, obvious to all, the high prosperity of the industry shown by the rise in volume and price has provoked all kinds of funds to chase, how many stock gods and foundation gods have been achieved by liquor stock investment, how can the liquor industry be so poorly described as above?

This brings us to the unique competitive landscape and situation of the liquor industry. The liquor industry is like a monkey herd, with a strict "hierarchy" from top to bottom:

Kweichow Moutai (600519. SH, Moutai) is the monkey king, with the strongest power (brand influence) in the monkey herd to enjoy the largest food distribution power.

Wuliangye(000858. SZ), Luzhou Laojiao (000568. SZ) and other national high-end brands are equivalent to the top of the monkey herd second only to the monkey king.

The remaining endemic low-end wine brands are equivalent to the middle and bottom layers of the monkey herd.

From the high-end to the low-end, although the pricing range of each wine company overlaps to a certain extent, the echelon is strict, and the pricing of liquor products is distributed downward step by step with Moutai as the ceiling.

When the industry is prosperous, the price increase and expansion of high-end brands leaves room for the price increase of sub-high-end brands, and brands of all levels in the industry "pick up the level" and enjoy the feast of ecological niche upward movement;

When the industry is down, if high-end brands want to maintain growth and expand their share, they can only penetrate their sphere of influence.

High-end brands squeeze down the survival space of sub-high-end brands, and sub-high-end brands can only continue to sink, just like when the year is bad, the monkey king and the top and the middle and low monkeys grab food, feed the monkey king and the top monkeys, naturally a large number of middle and low monkeys will starve to death.

This is the state of the liquor industry in the past few years.

The market describes this state of affairs as "rising industry concentration" and hopes that the price increases of high-end brands such as Moutai, Wuliangye and Luzhou Laojiao will provide space for the expansion of sub-high-end brands.

As a result, there is a consensus of "structural opportunity" and "structural bull market".

Today, we can't help but ask: can mainly rely on high-end brands to raise prices, can support the liquor sector to return to high prosperity?

Relying on price increases, can it still support a high boom?

Before answering the previous question, one question needs to be answered: Do high-end brands have a basis for further price increases?

01 Consumer side

Today, the consumer group of liquor has changed from official consumption in the past to personal consumption and business consumption. In the era of mass consumption, the consumption of high-end liquor has tested the consumption strength and willingness of residents.

(Source: China Liquor Association)

The industry usually uses the per capita disposable income of urban residents to measure the consumption power of residents, but since this data is cash income before deducting personal debt burden, it is unfair to measure the real spending power of residents.

In the past two decades, we have experienced a stage of rapid leverage in the residential sector, which has rapidly increased from less than 5% in 2000 to 63.3% in 2023Q1. Considering that part of the disposable income of residents is to be used for debt repayment, the actual consumption power of residents needs to be discounted.

Brokerages are unanimously optimistic, funds are desperately fleeing, what is the truth? Cold thinking in the liquor industry|Wind and cloud theme

(Source: Wind)

In the five years from 2017 to 2022, the average annual growth rate of Feitian Moutai retail price was about 22%, while the average annual growth rate of urban residents' disposable income in the same period was only 7%.

When revenue growth continues to keep up with the speed of high-end liquor price increases, is the foundation for further price increases of high-end liquor still solid?

Based on the M-shaped social composition, Fengyunjun does not doubt the sales of Feitian Moutai, but what about other series of liquor under Moutai and all the liquor brands that want to focus on high-end? After all, the raw materials are just that little grain, who doesn't want to sell it for more money?

Brokerages are unanimously optimistic, funds are desperately fleeing, what is the truth? Cold thinking in the liquor industry|Wind and cloud theme

(Source: Hongta Securities)

In terms of residents' willingness to consume, as long as we see the record-breaking growth of residents' deposits since the beginning of this year, we know that in the stage of deleveraging, the overall willingness of residents to consume is declining.

As for the business consumption demand related to the real estate boom that the industry has high hopes for, we only need to know that "in 2023Q1, the national real estate development investment fell by 5.8% year-on-year", we can speculate that this part of the demand is no better.

Brokerages are unanimously optimistic, funds are desperately fleeing, what is the truth? Cold thinking in the liquor industry|Wind and cloud theme

(Source: National Bureau of Statistics)

From the end demand of liquor, we have not found a reason to be optimistic.

02 Dealers

Now let's look down to see what the group of liquor dealers is.

According to statistics from the China Liquor Association, about 40% of liquor distributors will have inventory of more than 5 months in 2022, and most channels are facing greater inventory pressure.

Brokerages are unanimously optimistic, funds are desperately fleeing, what is the truth? Cold thinking in the liquor industry|Wind and cloud theme

(Source: China Liquor Association)

To put it bluntly, the dealer is a reservoir.

Liquor enterprises can press goods to downstream distributors and transfer the operating pressure downward, so the operating status of the distributor group is closer to the actual situation of the industry.

On the basis of high inventory pressure, it seems unrealistic to expect distributors to first raise prices for high-end and sub-high-end liquor brands.

In fact, raising prices is a double-edged sword. In addition to the "liquor luxury goods" such as Feitian Moutai that make the price increase smooth due to the gap between supply and demand, once the price increase of other high-end and sub-high-end liquor brands is blocked, it is easy to lead to price inversion and loss of market share.

At this point, we have reason to wonder: will high-end wines raise prices en masse?

If the price is not raised, then where is the high prosperity of the industry represented by the "volume and price rise"?

The revenue of the head wine companies has slowed down, and the willingness of wine merchants to pay has weakened

Since high-end and sub-high-end brands are the "oil flowers" on the bowl of porridge in the liquor industry, we may wish to start with them to see if we can see some clues.

Moutai, Luzhou Laojiao, Shanxi Fenjiu (600809. SH, Fenjiu) in the first quarter of 2023 shows that their respective revenue and net profit attributable to the parent are growing at a year-on-year rate of more than 20%.

However, from a vertical point of view, since 2021, the revenue of these leading wine companies except Moutai has slowed down year-on-year.

Fenjiu's revenue in 2022 increased by 31% year-on-year, down 12 percentage points from 2021, and revenue in 2023Q1 increased by 20% year-on-year;

Wuliangye and Yanghe (002304. SZ's year-on-year revenue growth fell to less than 20% in Q1 2023.

Brokerages are unanimously optimistic, funds are desperately fleeing, what is the truth? Cold thinking in the liquor industry|Wind and cloud theme

(Source: Financial reports of various companies)

In addition, prepayment/contract liabilities are often used as leading indicators to reflect the willingness of downstream distributors to take goods.

The logic behind this is roughly that during the upward period of the industry, dealers close to the terminal market are the first to feel the prosperity of the industry and pay for goods in advance. When the industry is down, dealers reduce payments and digest inventory.

From 2021 to 2022, except for Moutai, the contract liabilities of the remaining four high-end and sub-high-end liquor companies are in a downward trend, indicating that the willingness of downstream distributors to pay has weakened.

Brokerages are unanimously optimistic, funds are desperately fleeing, what is the truth? Cold thinking in the liquor industry|Wind and cloud theme

(Source: Financial reports of various companies)

2023Q1:

Moutai's contract debt was 8.3 billion yuan, unchanged from the same period last year;

Wuliangye's contract liabilities grew the most prominently year-on-year, reaching 53%;

Yanghe's contract liabilities declined significantly year-on-year, at -29%;

The remaining two contract liabilities showed little year-on-year growth.

Brokerages are unanimously optimistic, funds are desperately fleeing, what is the truth? Cold thinking in the liquor industry|Wind and cloud theme

(Source: Financial reports of various companies)

Combined with the latest data, even in the face of high-end and sub-high-end liquor brands in the industry, the willingness of downstream distributors to pay is not positive.

Therefore, we have not found a reliable basis for the "bottom" argument and the upward trend of the liquor industry.

Through macro data, to the annual summary of the liquor industry association, to the verification of the operating data of distributors and head liquor enterprises, we have not found clear evidence of the upward trend of the industry with "rising volume and price" as the core feature.

The seller came out to explain, what is the logic you are trying to advocate?

I mean objective logic, not dreamy and verbal logic.

Disclaimer: This report (article) is an independent third-party research based on the public company nature of listed companies and based on the information publicly disclosed by listed companies in accordance with their statutory obligations (including but not limited to interim announcements, periodic reports and official interactive platforms, etc.); Market capitalization strives to be objective and fair in the content and opinions contained in the report (article), but does not guarantee its accuracy, completeness, timeliness, etc.; The information or opinions expressed in this report do not constitute any investment advice, and Market Cap assumes no responsibility for any action taken as a result of the use of this report.

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Brokerages are unanimously optimistic, funds are desperately fleeing, what is the truth? Cold thinking in the liquor industry|Wind and cloud theme