Moutai Buys Back Shares for the First Time in 23 Years

2024-07-03

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

Amid a sluggish stock price, 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 plans to use its own funds of 3 billion to 6 billion yuan to repurchase its shares through a centralized bidding transaction method.

The upper limit of the repurchase price for this time is 1795.78 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 told Caijing that Kweichow Moutai's upper limit for the repurchase price is much higher than the closing price of the company's stock on September 20th, which was 1263.92 yuan per share.

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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, told Caijing that considering Moutai's dividends in recent years, this repurchase is a responsible financial reflection of Moutai to its shareholders and 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 fluctuations in the batch price of Moutai liquor, institutions downgrading the ratings of liquor companies, and the lukewarm performance of the Mid-Autumn Festival liquor market have affected the stock price of Kweichow Moutai, which has continued to decline 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 1245.83 yuan per share on September 19th, the lowest since June 2020, down 34% from the high point of 1874.1 yuan per share on July 31, 2023, with the market value evaporating up to 789.1 billion yuan.

On September 20th, the closing price of the company's stock was 1263.92 yuan per share, with a market value of 1.59 trillion yuan.

Despite the sluggish stock price, Kweichow Moutai's performance has continued 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 of over 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 work hard to ensure the annual target of a 15% increase in total operating income is completed on schedule.

According to the announcement, the upper limit of the repurchase price for this time is 1795.78 yuan per share (inclusive).

According to 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 vast number of investors, and to enhance investment confidence, on the premise of ensuring that the company's normal operations 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 the 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, with net assets attributable to shareholders of listed companies at 218.58 billion yuan, and cash and cash equivalents at 145.27 billion yuan.

According to the calculation that all the repurchase funds of 6 billion yuan are used up, the repurchase funds account for about 2.75% of the net assets attributable to shareholders of listed companies 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 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 actual situation of the company, 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 and review procedures and announce them according to relevant regulations.

Ouyang Qianli told Caijing that Kweichow Moutai's first implementation of a cancellation repurchase in 23 years since its listing can be seen as a response to the new "nine national policies" and also a reflection of its adoption of suggestions from small and medium investors.

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

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

For the Chinese liquor consumption market, which is currently in a deep adjustment cycle, it has a significant guiding significance.

On the evening of August 8, 2024, when Kweichow Moutai released its semi-annual 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 shareholders of listed companies realized in that 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 to the announcement of Kweichow Moutai's high cash dividend plan.

Yang Delong, Chief Economist of Qianhai Open Source Fund, told Caijing that Kweichow Moutai's increase in dividends is beneficial for enhancing investors' sense of gain 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 1255.53 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 with the dividends obtained 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 1800 yuan per share.

Behind Kweichow Moutai's first repurchase after 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 1300 yuan per share.

The stock price fell 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 1245.83 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 released 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 distributors' enthusiasm for repayment is generally average.

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

Continuous differentiation and weak sales are the summaries of many securities firms for the performance of the liquor market during the Mid-Autumn Festival.

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

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

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

In the view of Huachuang 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.

"Industry regulation is getting stricter, and factors such as typhoon weather in the East China region also have a certain impact."

Looking at the price bands, high-end brands above 1000 yuan saw a decline in sales of 5%-10%, the sub-high-end price band declined by double digits, and the mass price band of 100 yuan-300 yuan performed relatively well in sales.

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

In the view of Huachuang 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 returning home and banquet scenes.

It is expected that the terminal will have some replenishment before the National Day, and the channel will add some repayments near the end of the financial year to ensure the annual profit, and the inventory will be digested to a certain extent.

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

In June 2024, influenced by factors such as the low price after the e-commerce billion yuan subsidy, the price of Feitian Moutai once fluctuated, and some yellow cows 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), from 2470 yuan per bottle on June 9, 2024, to 2230 yuan per bottle on June 14, 2024.

Affected by this, in late June, the company's closing price hovered around 1500 yuan per share, down more than 10% from the highest stock price this year - 1741.72 yuan per share on May 7th.

On July 26th, UBS released a report, downgrading the ratings of liquor 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.

On July 30th, the company's stock price fell to a low of 1361.3 yuan per share, setting a new 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 by leading baijiu companies and the decrease in population may be structural barriers to overall baijiu consumption.

This is further compounded by social inventory factors, meaning that in the past decade, some demand has been hoarded as investments.

She further indicated that the report's mention of a potential decline in the wholesale prices of some baijiu by 17% to 50% from the current level is an assumption for the most pessimistic scenario, not the baseline case.

Cai Xuefei told Caijing that although the entire brewing industry still faces risks such as high inventory, price inversion, and weak 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 the stage of bottoming out prices, and it is expected that the market will enter a dynamically stable phase after the Spring Festival next year.

Unlike the stock price that continues to be sluggish, Kweichow Moutai's performance has remained steadily growing.

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

For the company's performance in the first half of the year, many institutions have expressed that it exceeded expectations.

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

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

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

Some securities firms pointed out that the series of wines was significantly accelerated in the second quarter, and it was disclosed in early July that Moutai 1935 had completed the first half of the year's task targets ahead of schedule and suspended the release.

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%.

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

In response, 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.

The company's wholesale channel sales policy has not been adjusted.

Since November 1, 2023, Kweichow Moutai has raised 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 1,169 yuan/bottle.

Regarding the market's concern about the market price of Moutai liquor, Zhang Deqin said at Kweichow Moutai's 2024 semi-annual performance briefing that Moutai highly values 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 with representatives of channels such as dealers, e-commerce, group purchases, and provincial self-operating stores, 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 growth of about 15% and completing a fixed asset investment of 6.179 billion yuan are the main goals of Kweichow Moutai in 2024.

In the view of CITIC Construction Investment, the company is expected to further market-oriented reforms, continue to strengthen the 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 wines continue to release the investment value of Moutai.

Moutai 1935 has completed the transformation and upgrade, breaking through the 10 billion yuan mark.

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

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