Gujing Earnings: Robust Demand, Cost Efficiency Drive Growth Outlook, but Shares Slightly Overvalued

Narrow-moat Anhui Gujing posted a strong set of half-year results that were in line with our expectations, with robust volume growth and mix upgrade, as well as optimized operating expenses, driving 45% net profit year-over-year growth. We believe Gujing’s leadership in its home market of Anhui province well positions it as the key beneficiary of a stronger expansion of the local economy. We believe this should drive robust demand and solid premiumization for baijiu sales, while Gujing’s national expansion, along with improving cost efficiency, should further boost sales growth and margin expansion. We maintain both our fair value estimate of CNY 225 per share and full-year 2023 forecast net profit growth of 44% to CNY 4.5 billion. However, we think the shares are slightly overvalued as of market close on Aug. 30. At the current levels, we think Yanghe and Wuliangye offer a slightly better risk/reward.