When the “quantity and price” logic fails, can we still expect a 100 billion-level enterprise to maintain a growth rate of about 30% for a long time?
Editor’s note: This article is from WeChat public account “ Reading Finance ” (ID: dudongcj), author Su Qi.
The stock price has plummeted for two consecutive days. This is the market’s response to Guizhou Moutai’s performance forecast. Through these two days of stock price performance, you can feel that this performance forecast is hard to say.
According to the performance forecast, Guizhou Moutai’s total operating income in 2019 is about 88.5 billion yuan, an increase of about 15% year-on-year; the net profit attributable to shareholders of listed companies is about 40.5 billion yuan, an increase of about 15% year-on-year.
Although it continues to grow, this is the worst performance of Moutai in Guizhou in recent years. In 2016, 2017 and 2018, Guizhou Moutai’s revenue growth was 20.06%, 52.07% and 26.43% respectively; net profit growth was 8.97%, 61.77% and 30.42% respectively.
Under the circumstance that “volume and price” is limited and the performance of self-operated channels is average, Moutai, Guizhou has a “stall”. Since the first quarter of last year, Moutai in Guizhou has stopped growing at a high speed. In the first quarter of 2019, Guizhou Moutai’s revenue increased 22% year-on-year, and the second to fourth quarters had growth rates of 11%, 13%, and 12% respectively. This trend will continue into next year. According to the performance forecast, the company plans to arrange a total operating income growth of 10% in 2020.
No doubt, Moutai, Guizhou is one of the companies with the most certain A-shares and the most worthy investment. But we also want to see it. As a “100 billion” enterprise, it is irrational and unrealistic to maintain a growth rate of about 30% for a long time. If low growth rate becomes the new normal of Moutai in Guizhou, how should we view its current valuation?
Moutai’s “quantity and price” art (ji) technique
All along, the improvement of Moutai’s performance in Guizhou has been a logic of “volume and price” rising together.
In the past 10 years, Guizhou Moutai’s revenue increased from 9.67 billion to 73.889 billion, with a compound annual growth rate of 25.3%; net profit increased from 4.31 billion to 35.2 billion, with a compound annual growth rate of 26.28%. During this period, the growth rate of Moutai base wine output was about 14% per annum, and the ex-factory price increase rate was about 7% per annum.
I have to say that “quantity and price” is a technology, a very complicated technology.
First of all, the supply should not be too much. If Maotai Liquor is bad, the impact on prices will be very serious.Big. During the Spring Festival in 2009, Moutai, Guizhou did not raise prices, but instead seized market share by volume. However, after the end of the Spring Festival, facing the downward pressure on prices, Moutai, Guizhou announced the start of volume control.
With regard to the amount of control, Moutai, Guizhou has learned very well. Due to many reasons such as craftsmanship, from 2016 to 2018, the production of Moutai base liquor was 39,000 tons, 42,800 tons, and 46,100 tons, with a slow growth. Guizhou Moutai Chairman Li Baofang repeatedly revealed in 2019 that after the Moutai wine production capacity expanded to 56,000 tons, it would stop expanding.
Controlling prices, Moutai, Guizhou, has not been so calm.
The selling price cannot be too low. If you can buy Moutai at any time and at any suggested retail price, then Moutai will lose its magic. But the higher the price, the better. Mr. Market is unreasonable. The circulation price of Moutai can not be controlled by Moutai and it is easy to get out of control. The larger the bubble, the greater the impact of the bubble after it has been burst. This point, Moutai, Guizhou experienced in 2012, which it is afraid of.
In theory, maintaining a stable premium and strong market demand for Moutai liquor ensure that the annual sales volume of Moutai in Guizhou can be saturated. This state is the most perfect. But this is limited to theory, and it is extremely difficult to maintain this state continuously. From the current situation in Maotai, Guizhou, you can glimpse.
Quantity and price are “limited”, Moutai stalls
Moutai in Guizhou started in 2016. After undergoing storms such as plasticizers and eight regulations, the liquor sector experienced a brief adjustment. Under the “limited price guarantee” strategy in 2016, the price of Moutai began to pick up and demand began to increase.
From 2016 to 2017, Guizhou Moutai’s performance rose mainly due to higher sales.
In 2016, the sales volume of Moutai liquor was 22,900 tons, a year-on-year increase of 15.76%; the sales income was 36.714 billion yuan, a year-on-year increase of 16.39%.
In 2017, the sales volume of Moutai liquor was 30,200 tons, a year-on-year increase of 31.80%; the sales income was 52.394 billion yuan, a year-on-year increase of 42.71%.
With the increase in sales, the sales volume of Moutai has basically reached the production capacity limit. Due to process reasons, the annual output of Moutai liquor is about 85% of the base wine output 5 years ago. Of course, the 85% ratio is not absolute, but overall it is almost the same.
Sales in 2017 were 89.8% of base wine production in 2012; sales in 2018 were 84.38% of base wine production in 2013. In 2014, the output of Moutai base liquor was 38,700 tons, and theoretically, the sales volume in 2019 was about 32,300 tons, which is almost the same as the actual amount of 32,400 tons in 2018. In this case, there is not much room for incremental growth in 2019.
In 2015, Moutai, Guizhou lowered its production plan, and the base wine output was only 32,200 tons, which is even more limited in 2020.
Capacity bottlenecks are highlighted, and the logic for Guizhou Moutai’s performance growth is mainly price increases. In 2018, the ex-factory price of Moutai was raised by 18%.
History is always surprisingly similar. As the market warms up, the price of Moutai has gone crazy again. According to a research report released by Minsheng Securities on September 2, 2019, “A batch of Feitian prices continued to rise, reaching 2500-2600 yuan, once again breaking through the historical high.”
After experiencing the previous bubble, Moutai, Guizhou is more cautious about price increases. The main theme of 2019 is not price increases, but cooling. Guizhou Moutai not only strengthened the control of distribution channels, but also increased the supply of channels to consumers, such as supermarkets, specialty stores, and e-commerce.
The volume and price are “limited”, and Moutai’s self-operated channels in Guizhou have failed to support its performance.
The current ex-factory price of Maotai Liquor is 969 yuan, the guide retail price is 1499 yuan, and the allowance difference is 530 yuan. In theory, the difference between the ex-factory price and the sales price of Moutai is the thick snow slope of Moutai, and it is also one of the most important growth points for future performance.
Although in 2019 Moutai in Guizhou has made great efforts to reform its channels, it has also stated that it will increase its own supply. However, in the first three quarters of 2019, Guizhou Moutai’s self-operated income was only 3.1 billion yuan, a year-on-year decrease of 18%. The promotion of self-operated channels is not as rapid as investors think.
Quantity and price are “limited”. Investors have high hopes for the self-operated channels, and Moutai’s performance growth engine will inevitably catch fire.
What should we do about Maotai after a stall?
As one of the most definitive A-share companies worth investing in, whether or not Guizhou Moutai’s performance will keep growing does not need us to worry.
Since 2000, liquor has gone through three distinct cycles. Looking down, the pattern of the liquor industry can be summed up in one sentence: the “Mao Wu” of iron, the youngest in the water. Even in the “Mao Wu” period, the gap is widening.
Different from the general rise of the high-end liquor market in 2011, the price of Maotai liquor has gone out of the market. Since 2018, the prices of Wuliangye and Guojiao 1573 have been relatively stable, while Moutai has doubled.
When a high-end brand is established, it is extremely powerful in terms of price, dealer system, and user mindset. A good brand can cross the cycle. Not to mention that the current price of Moutai is still stable.
From 2017 to 2019, Moutai base wine production was 36,000 tons, 42,800 tons, 49,600 tons, and 49,900 tons., In a steady rise. From the perspective of investment volume, the performance of Guizhou Moutai in the next few years is fully guaranteed.
What we need to consider is that after the “volume and price” logic fails, can we still expect a 100 billion-level enterprise to maintain a growth rate of about 30% for a long time. At least to Li Baofang, this is neither irrational, unrealistic, nor irresponsible.
If low growth rate becomes the new normal of Moutai in Guizhou, whether its performance growth rate can support the current valuation is something we should consider.