Consumer Staples Author：Yue Liu Editor：Luke Sheehan Aug 04, 2020 08:00 AM (GMT+8)

Despite the decline in the net profit growth of Kweichow Moutai, institutions are still raising the company's target price.

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On July 28, Kweichow Moutai released its 2020 semi-annual report. The company recorded a CNY 43.95 billion revenue, a year-on-year increase of 11.31%; net profit was CNY 22.60 billion, a year-on-year increase of 13.29%.

With the gradual slowdown in Moutai's production capacity, there is a huge gap between the appeal of different sub-brands. Moutai Series and Moutai achieved operating income of CNY 39.26 billion and CNY 4.65 billion, respectively, a year-on-year increase of 11.39% and a year-on-year decrease of 1.63%.

Moutai output 48,100 tons liquor, of which the output of Moutai was 36,700 tons, an increase of 6.69% year-on-year, and the production of the Moutai Series was 11,400 tons, an increase of 4.59% year-on-year. Due to capacity constraints, the overall production growth rate of Moutai liquor missed the market expectation of 10%.

As the most expensive traditional Chinese spirit brand, Feitian Moutai is facing a quandary of swelling prices. Since 2006, the ex-factory price of Moutai has been rising continuously, going from CNY 268/bottle to CNY 969/bottle in 2017 – it stopped increasing in 2017. Meanwhile, Wuliangye and Guojiao 1573 have frequently raised prices to catch up with Moutai.

In the past three years, the year-on-year growth rate of Kweichow Moutai's net profit in the second quarter was 41.5%, 20.29% and 8.89%, respectively. A declining growth rate exposed the company to potential challenges.