How long can Kweichow Moutai, the leading liquor brand, continue to be great?
Strictly speaking, liquor belongs to a large consumer industry.
The consumer industry itself has cyclical attributes.
However, the steady growth of China's economy, coupled with the steady increase in money supply, has prevented the entire consumer sector from entering a countercyclical period in recent decades.
In addition, in the liquor industry, the market demand for high-end liquor is strong, which has given rise to the hot sales of mid-to-high-end brands such as Feitian Moutai, Wuliangye, and Guojiao 1573.
In a market environment where supply exceeds demand, the procyclical trend of liquor may continue for a long time.
So, judging from Moutai’s performance alone, it can still maintain relatively stable growth.
However, whether the slow performance of Manniu can enable Moutai to continue to get out of the Manniu market is actually open to question.
After all, Moutai’s valuation is already at a relatively high level in history, and the pressure to digest the valuation is very high, which hinders Moutai’s upside.
Today, let’s talk about Baijiu and Moutai based on the logic of performance growth and the logic of Moutai’s stock rise. Why can Moutai's performance grow steadily?
We do not analyze Moutai's performance from the perspective of the consumer industry, but purely from the perspective of Moutai's own enterprise and products.
Moutai’s net profit margin has remained between 91-92% all year round.
In other words, the actual cost is only a little more than 8%. A bottle of Feitian Moutai worth 1,500 yuan costs 120-130 yuan.
Moutai’s net profit margin is 50-55%, which means that more than half of the total sales price is pure profit.
The middle 35-40% is the dealer's profit.
This does not include private additional price increases by some dealers when supply exceeds demand.
Of course, all this can only prove that Moutai is very profitable and lays the foundation for Moutai's performance and market value. It cannot explain the essence of Moutai's steady growth in performance.
What has led to the steady growth of Moutai's performance is actually the consumer market where supply exceeds demand.
We all know that Maotai products shipped from the factory at normal prices are often out of stock in the market. It can be said that supply exceeds demand.
Most people buy Moutai at a premium.
This situation of short supply illustrates two points.
1. Moutai’s price increase has little impact on the market.
There are a large number of Moutai products sold at increased prices in the market, and the market acceptance is very high, which shows that people who drink Moutai are not sensitive to price.
More recognition of Moutai comes from the quality and grade of the wine.
In this case, Moutai itself has room for price increases, which is a great guarantee for profit margins.
Of course, Moutai's own price increases are also subject to macro-control and will not rise wantonly.
2. As long as Moutai concentrates on improving production capacity, it can increase its revenue performance.
The supply of Maotai exceeds the demand, which is directly reflected in the fact that it is empty every second, that is, it is difficult to find a single product.
Therefore, Maotai’s performance is closely related to Maotai’s variables.
From a certain perspective, Moutai is more like a product under the planned economy. It has strict standards for the supply and acquisition of goods from suppliers.
It can be said that Moutai’s production capacity and sales are controlled.
Let’s talk about Moutai’s sustainable development path.
Moutai’s output in 2020 is 50,000 tons, more than 2,000 square meters per ton, and 100 million bottles of Moutai a year.
But the actual sales volume was 34,300 tons, which was 15,700 tons less, which was about 30 million bottles.
Moutai makes a move every year, which is to retain the base liquor. This retention lasts for 5 years.
Moutai has always claimed that this is for sustainable development, but it has a huge impact on the market.
Production capacity cannot keep up with supply and demand, plus the wine storage, plus the distributors’ wine storage and hype.
This path of sustainable development has brought the price of the remaining base wine even higher.
Moutai can macro-control liquor shipments to ensure its own performance, and it is indeed following the so-called sustainable development path.
According to the current market conditions, Moutai's production capacity, Moutai's sales strategy, and comprehensive judgment, Moutai's performance growth in the next 5-10 years is almost certain. What is the potential trend of Moutai's share price?
Moutai’s stock price is as high as its product Feitian Moutai.
You said there is no moisture, but in fact there is. You said there is really moisture, but it seems there is not.
Based on Moutai’s performance, there are several core viewpoints that I can share with you.
1. Moutai will never trick people, it is only a matter of time before making money.
In fact, for all stocks with guaranteed performance, it is only a matter of time before the stock price reaches a new high.
The stock price itself is a reflection of performance.
It’s just that funds will give the stock price a fluctuation range, and the high point and low point may be twice as different.
That is, the lowest price may be 50% of the highest price.
In other words, the worst-case scenario for buying Moutai may be that it is cut in half due to liquidity problems.
Based on the 10% compound annual growth rate of Moutai’s performance, the worst-case scenario would be four and a half years before it starts to make money.
Of course, this is just based on an assumption.
But for long-term funds, it is precisely because of such expectations that they dare to take over Moutai at any high price.
Because Maotai does not trick people.
2. Moutai’s reasonable valuation should be re-determined.
In the past, we generally gave a price-to-earnings ratio of about 30 times for the valuation of the liquor industry. When it was low, it was only about 20 times.
But judging from the current situation, liquors led by Moutai Wuliangye should be in line with higher valuation levels.
Some people may object that the growth potential of liquor is not outstanding, and it belongs to a traditional consumer industry, so it is not worthy of such a high valuation.
The reality is that in the high-end field of liquor, the certainty of performance cannot be replaced by other industries.
Indeed, in some technology fields, the Internet field, and new energy fields, the growth of enterprises is better.
However, those tracks also face huge challenges, accompanied by huge uncertainties.
A technological revolution, or even just a patent, is entirely possible for a technology company to go downhill, but liquor based on mass consumption will not, let alone top liquor.
Therefore, the stability of performance gives Moutai’s stock price the strongest support.
3. Moutai must be a core asset.
Indeed, China’s core assets in the future will not be concentrated in large consumer goods, but must be manufacturing, technology, etc.
That is a clear direction of development.
But this does not affect that Moutai, as a core asset, has a certain premium right.
The so-called core assets are companies that can continuously produce profits like a money printing machine.
Moutai completely meets this standard.
Many people say that China does not have luxury goods, and almost all luxury goods come from abroad.
From the perspective of our country’s thousands of years of culture, is high-end liquor not a luxury product?
Is it because foreigners don’t accept Chinese liquor now?
The Chinese people have accepted luxury goods from foreigners, which is what happened in the past ten or twenty years. Many things must be viewed from a development perspective.
It is true that liquor cannot rejuvenate the country, but this does not mean that liquor cannot become a core asset.
Similarly, tobacco is not a good thing, but tobacco is also a core asset because companies make money.
In the capital market, companies that can make money will be chased by funds. With more funds, premiums will naturally arise.
I believe it is only a matter of time before Maotai reaches 3000, 4000, and 5000, just like the Shanghai Composite Index reaches 4000, 5000, and 6000.
Time can prove everything, and the stock price also needs time to prove.
One thing to remember.
Moutai’s stock price has entered the second half from the first half, which is the true meaning of a mad cow turning into a slow bull.
As for whether to invest in Moutai now, it is a matter of opinion and there is no need to discuss it too much.
About cyclical industries
Many people actually don’t understand cyclical industries.
In fact, every industry will be cyclical, which is the law of economics.
Even the economy itself has cyclical patterns.
It’s just that cycles are also divided into large cycles and small cycles, and they are different.
The biggest natural enemy of the cycle of consumer stocks is economic development.
If economic development reaches a bottleneck, the market begins to experience deflation, and people are no longer willing to spend money on consumption, then the performance of stocks will naturally decline significantly.
This is actually not exactly the same thing as other industries, such as the cyclical concept stocks we often call.
In most cyclical industries, what affects enterprise production is raw material prices and market supply.
When faced with rising raw material prices and a double hit in downstream shipments, corporate profits will naturally be severely squeezed.
When raw material prices fall and market demand is strong, corporate profits will naturally increase sharply.
The liquor market, including the pharmaceutical market, is relatively special and the market demand is relatively stable.
As long as a company controls the pricing of its products, it can basically ensure performance growth and will not be affected by too many other factors.
In industries such as liquor production and brewing, the cost of raw materials is extremely low and it mainly relies on the production process, so the cyclical impact is even smaller.
As a luxury product, high-end liquor is different from ordinary liquor. The market is in short supply, so there is no need to worry about sales.
In addition, Moutai itself can store wine, directly crossing the industry cycle.
So, even in a cyclical industry with large consumption, the impact on Moutai is actually very small.
Moutai’s scenario-based approach has become its biggest barrier against cyclicality.
In fact, there are not many people who understand Maotai.
Many people consider leading companies in all walks of life to be the best, but this is actually wrong.
The characteristics of each industry are different, and the investment methods are naturally different.
Growing companies have their own investment methods and unique barriers. Companies with stable growth have their own investment methods, and technology companies also have their own unique investment methods.
Investors who are willing to hold it for the long term can consider investing in stocks like Moutai in batches at relatively reasonable price ranges to pursue long-term stable returns.
For investors pursuing high returns, you may wish to go to technology companies to look for companies that can subvert the industry to obtain higher returns.
Moutai’s performance growth is certain, which is a double-edged sword. It is both an advantage and a disadvantage, and must be viewed dialectically.