Moutai Buys Back Shares for the First Time in 23 Years

After announcing a high cash dividend plan, Kweichow Moutai plans to repurchase shares to boost investor confidence.

Amidst a slump in stock prices, the leading liquor company Kweichow Moutai (600519.SH) has introduced a plan to repurchase and cancel shares.

On the evening of September 20th, Kweichow Moutai issued an announcement stating that the company intends to use its own funds of 3 billion to 6 billion yuan to repurchase company shares through a centralized bidding transaction method.

The upper limit of the repurchase price for this time is 1,795.78 yuan per share (inclusive), and the repurchased shares will be used for cancellation and reduction of the company's registered capital.

Liquor industry researcher Ouyang Qianli said that the upper limit of Kweichow Moutai's repurchase price is much higher than the closing price of the company's stock on September 20th, which was 1,263.92 yuan per share.

It provides a relatively clear value benchmark, injecting confidence into the capital market while also setting a new example for other industries and companies.

Cai Xuefei, General Manager of Zhiqu Consulting and liquor analyst, said that considering Moutai's dividends in recent years, this repurchase is a financial reflection of Moutai's responsibility to shareholders.

It is also a positive measure for Moutai to stabilize market sentiment, protect the interests of channel merchants, and activate market consumption during the adjustment cycle.

Since 2024, many listed companies have conducted repurchases.

Wind data shows that from the beginning of 2024 to September 20th, more than 1900 A-share companies have conducted repurchases, involving a total amount of about 129.6 billion yuan.

Among them, there are 11 companies with repurchase amounts exceeding 1 billion yuan.

Behind the repurchase of shares, factors such as the fluctuation of Moutai liquor's batch price, the downgrade of liquor companies' ratings by institutions, and the mediocre performance of the Mid-Autumn Festival liquor market have led to a continuous decline in Kweichow Moutai's stock price since May 2024.

Although Kweichow Moutai announced a high cash dividend return plan for 2024-2026 in August 2024, the company's stock price still fell to a low of 1,245.83 yuan per share on September 19th, the lowest since June 2020, down 34% from the high point of 1,874.1 yuan per share on July 31, 2023, with the market value evaporating by up to 789.1 billion yuan.

On September 20th, the closing price of the company's stock was 1,263.92 yuan per share, with a market value of 1.59 trillion yuan.

Despite the low stock price, Kweichow Moutai's performance continues to grow steadily.

In the first half of 2024, the company's operating income and net profit attributable to the parent company were 81.9 billion yuan and 41.7 billion yuan, respectively, with year-on-year growth rates both exceeding 15%.

Regarding whether the company can achieve the performance growth target for 2024, Zhang Deqin, Chairman of Kweichow Moutai, said at the 2024 semi-annual performance briefing that the board of directors and the production and operation team will fulfill their duties and ensure the completion of the annual target of a 15% increase in total operating income.

According to the announcement, the upper limit of the repurchase price for this time is 1,795.78 yuan per share (inclusive).

Based on this calculation, it is estimated that the number of repurchased shares will be about 1.67 million to 3.34 million shares, accounting for about 0.13% to 0.27% of the total share capital.

Regarding the purpose of the repurchase of shares, Kweichow Moutai stated that in order to protect the interests of the company and the majority of investors, and to enhance investment confidence, on the premise of ensuring that the company's normal operation and long-term development are not affected, according to relevant regulations, the company plans to implement a share repurchase plan with its own funds.

The repurchased shares will be used for cancellation and reduction of the company's registered capital.

The implementation period for the aforementioned repurchase of shares is within 12 months from the date when the Kweichow Moutai shareholders' meeting approves the repurchase plan, and the source of repurchase funds is the company's own funds.

What impact will this repurchase have on Kweichow Moutai's operations and other aspects?

As of June 30, 2024, Kweichow Moutai's total assets were 279.2 billion yuan, and the net assets attributable to the shareholders of the listed company were 218.57 billion yuan, with cash and cash equivalents of 145.27 billion yuan.

According to the calculation that the upper limit of the repurchase share funds of 6 billion yuan is fully used, the repurchase funds account for about 2.75% of the net assets attributable to the shareholders of the listed company and 4.13% of the cash and cash equivalents as of June 30, 2024.

Kweichow Moutai stated that after the implementation of the aforementioned repurchase plan is completed, it will not have a significant impact on the company's daily operations, finance, and future development.

At the 2024 semi-annual performance briefing of Kweichow Moutai on September 9th, an investor asked whether the company should repurchase and cancel shares to reduce the share capital and increase the gold content per share, and whether the company has considered it?

In response, Zhang Deqin said that combining the current stock market situation and the company's actual situation, the company has conducted a systematic study on different market value management measures.

If there are relevant plans in the future, the company will strictly follow the corresponding decision-making review procedures and announce according to relevant regulations.

Ouyang Qianli told Caijing that Kweichow Moutai's first implementation of cancellation-type repurchase since its listing 23 years ago can be seen as a response to the new "Nine National Articles" and a reflection of its adoption of suggestions from small and medium investors.

Through dividends, repurchases, and other means, it realizes market value management tools, giving investors a greater sense of participation.

In Cai Xuefei's view, as relevant reform policies including repurchases and dividends are implemented, it has created favorable conditions for the enhancement of Moutai's brand value and the stability of product prices.

For the current deep adjustment cycle of China's liquor consumption market, it has a significant guiding significance.

On the evening of August 8, 2024, when Kweichow Moutai released its interim report, it also announced the cash dividend return plan for 2024-2026.

The company's annual cash dividend distribution will not be less than 75% of the net profit attributable to the shareholders of the listed company for the year, and the annual cash dividend will be implemented twice (annual and mid-term dividends).

This measure has been interpreted by the market as a major measure for the company to manage its market value.

At that time, the market gave a positive evaluation of Kweichow Moutai's high cash dividend plan.

Yang Delong, Chief Economist of Qianhai Source Fund, said that Kweichow Moutai's increase in dividends is conducive to enhancing the sense of gain for investors and has a positive effect on maintaining and increasing Moutai's market value.

It is worth noting that after the company's stock price fell to a stage low of 1,255.53 yuan per share on October 31, 2022, Kweichow Moutai launched a special dividend plan for shareholders for the first time in November 2022, and also released the holding shareholder Moutai Group's increase plan.

At that time, Moutai Group advocated that other shareholders voluntarily increase their holdings in the company's stock using the dividends obtained from the above.

After the announcement of the above news, Kweichow Moutai's stock price entered an upward channel.

On January 16, 2023, the company's stock price exceeded 1,800 yuan per share.

Behind Kweichow Moutai's first repurchase since its listing is the company's stock price hitting a new low in nearly four years.

From September 12th to 19th, 2024, Kweichow Moutai's stock price continued to decline and broke through 1,300 yuan per share, with the stock price falling more than 2% in the first three trading days.

During this period, on September 19th, the company's stock price fell to a low of 1,245.83 yuan per share, the lowest since June 2020.

The institutions' poor forecast for the Mid-Autumn Festival liquor sales, and the low sales data during the Mid-Autumn Festival, led to a further adjustment of Kweichow Moutai's stock price.

Orient Securities issued a research report on September 11th, stating that the Mid-Autumn Festival and National Day peak season is about to arrive, and liquor companies generally enter the delivery time point.

Considering the weak consumption environment, it is expected that liquor companies will be cautious in their investment actions, and the enthusiasm of distributors to collect funds is generally average.

The sales data during the Mid-Autumn Festival confirmed the market's concerns.

Continuous differentiation and flat sales are the summaries of the Mid-Autumn Festival liquor market performance by many securities firms.

According to feedback from various channels, the atmosphere of the Mid-Autumn Festival liquor peak season in 2024 is weaker than in previous years, and sales have declined year-on-year.

Many places such as Anhui and Sichuan have reported a decline in sales ranging from 10% to 30%.

The channel inventory increased by 0.5 to 1 month compared to the end of the second quarter, and the terminal inventory is still acceptable.

In the view of Hua Chuang Securities, the weakening of external demand and the decline in consumption frequency and grade are the main reasons for the decline in sales during the Mid-Autumn Festival.

"Stricter industry regulation and typhoon weather in the East China region also have a certain impact."

Looking at the price band, the sales of high-end brands above 1,000 yuan have declined by 5%-10%, the sub-high-end price band has declined by more than double digits, and the mass price band of 100-300 yuan has relatively better sales.

However, many institutions still have an optimistic attitude towards the later performance of the liquor market.

In the view of Hua Chuang Securities, the Mid-Autumn Festival and National Day peak seasons in 2024 are separated by two weeks, which is relatively long, providing a certain window period for the increase in the frequency of return visits and banquet scenes.

The terminal is expected to replenish stocks before the National Day, and the channel is approaching the end of the financial year, which may add some funds to ensure full-year profits, and inventory may be digested to a certain extent.

In fact, since May 2024, influenced by factors such as the fluctuation of Moutai liquor's wholesale price, Kweichow Moutai's stock price has continued to decline.

In June 2024, influenced by factors such as the lower price after e-commerce's billion-dollar subsidy, the price of Feitian Moutai once fluctuated, and some speculators stopped receiving goods.

The third-party data platform Today's Liquor Price shows that the wholesale reference price (excluding taxes, logistics, labor, and other necessary costs, the same below) of 53-degree 500ml 24-year Feitian Moutai (loose) was 2,470 yuan per bottle on June 9, 2024, and dropped to 2,230 yuan per bottle on June 14, 2024.

Affected by this, in late June, the company's closing price was hovering around 1,500 yuan per share, down more than 10% from the highest stock price this year - 1,741.72 yuan per share on May 7th.

On July 26th, UBS issued a report, downgrading the ratings of liquor-listed companies such as Kweichow Moutai.

It also predicted that based on potential inventory and other factors, the wholesale price of Moutai may fall by 50% compared to the current price by 2025.

Affected by the above news, Kweichow Moutai's stock price continued to decline, and on July 30th, the company's stock price fell to a low of 1,361.3 yuan per share, a stage low since 2023.Subsequently, UBS's Head of Consumer Goods in Greater China, Peng Yanyan, stated to the media that the continuous expansion of production capacity of top-tier baijiu companies and the decline in population may be structural resistance to the overall consumption of baijiu.

Additionally, social inventory factors, meaning that in the past nearly ten years, some demand has been hoarded as an investment, have been superimposed.

She further indicated that the report's mention of a possible 17% to 50% decrease in some baijiu wholesale prices compared to current levels is an assumption for the most pessimistic scenario, not the baseline case.

Cai Xuefei expressed that although the entire brewing industry still faces risks such as high inventory, price inversion, and sluggish demand in 2024, the current trend shows that the high-end alcohol consumption market is showing signs of stabilization and recovery.

The industry is in a bottoming-out phase in terms of pricing, and it is expected that the market will enter a dynamically stable phase after the Spring Festival next year.

Unlike the continuous growth in performance and the persistently low stock price, the performance of Kweichow Moutai remains steadily increasing.

In the first half of 2024, the company's operating income increased by 17.76% year-on-year to 81.9 billion yuan, and the net profit attributable to the parent company increased by 15.88% to 41.7 billion yuan.

Compared to the first quarter, the company's operating income growth rate has slightly declined, and the net profit increase has slightly improved.

Many institutions have expressed that the company's performance in the first half of the year has exceeded expectations.

CICC stated that Kweichow Moutai's second quarter exceeded expectations, mainly due to the series of liquor revenue growth being higher than expected.

In terms of products, in the first half of 2024, the company's Moutai liquor revenue increased by 15.67% year-on-year to 68.567 billion yuan, and the series of liquor revenue increased by 30.5% to 13.147 billion yuan.

The high growth of the series liquor is expected to continue to be driven by Moutai 1935.

Some securities firms have pointed out that the series liquor was significantly accelerated in the second quarter, and previously in early July, it was disclosed that Moutai 1935 had exceeded the progress of the first half of the year's task targets and suspended the release.

The changes in Kweichow Moutai's sales channels have also attracted attention.

In the first half of 2024, the company's wholesale agency and direct sales revenue were 47.986 billion yuan and 33.728 billion yuan, respectively, with year-on-year increases of 26.5% and 7.35%, respectively.

For the first time in five years, the year-on-year growth rate of the company's wholesale agency channel revenue has exceeded the increase in direct sales channel revenue.

In response to this, Jiang Yan, Deputy General Manager, CFO, and Secretary of the Board of Directors of Kweichow Moutai, said that the company's wholesale channel revenue increased significantly in the first half of the year, mainly due to the increase in the ex-factory price of 53-degree Kweichow Moutai liquor (Feitian, Wuxing), which led to an increase in the proportion of wholesale channel revenue, and the company's wholesale channel sales policy has not been adjusted.

Since November 1, 2023, Kweichow Moutai has increased the ex-factory price of 53-degree Kweichow Moutai liquor (Feitian, Wuxing), with an average increase of about 20%.

The original ex-factory price of 53-degree Feitian 500ml Kweichow Moutai liquor was 969 yuan/bottle, and after a 20% increase, the adjusted ex-factory price is about 1169 yuan/bottle.

Regarding the market's concern about the market price of Moutai liquor, Zhang Deqin said at the 2024 semi-annual performance briefing of Kweichow Moutai that Moutai attaches great importance to the market situation.

The company conducts in-depth market research in various provinces and regions, holds market work meetings in various provinces and regions, and has in-depth discussions and exchanges with representatives of dealers, e-commerce, group purchases, and provincial self-operated channels, continuously improving a systematic and coordinated strategic and tactical system, and the overall market situation is relatively stable.

The market remains optimistic about the company's subsequent performance.

Achieving an operating total revenue increase of about 15% year-on-year and completing a fixed asset investment of 6.179 billion yuan are the main goals of Kweichow Moutai for 2024.

In the view of CITIC Construction Investment, the company is expected to further market-oriented reforms, continue to strengthen its brand foundation, and drive the company's operations to continue to improve.

"In terms of products, the price of Feitian is gradually stabilizing, and non-standard products such as seasonal liquor continue to release the investment value of Moutai, and Moutai 1935 has completed the transformation and upgrade to break through the 10 billion yuan mark.

In terms of channels, innovations such as iMoutai, Xunfeng platform, and the third generation of stores have made outstanding contributions to the optimization of the company's channel structure."