Anhui Gujing Earnings: Robust Demand and Mix Upgrade Drive Decent Growth and Positive Outlook

Narrow-moat Anhui Gujing’s first-half results were largely in line with our expectations, with revenue and net profit rising 22% and 29% year over year, respectively. Although sales growth slowed slightly in the second quarter to 17%, we think it is still decent amid the current weak macroeconomic environment. We believe Gujing’s leadership in its home market of Anhui province positions it well as one of the key beneficiaries of the stronger local economy versus China as a whole. This should continue to drive robust demand and a solid premiumization trend for the firm’s baijiu sales. In addition, Gujing’s expansion into nationwide markets, along with improving cost efficiency, should further boost sales growth and margin expansion. We maintain both our earnings forecasts and fair value estimate of CNY 236 per share for Gujing. We think the shares are undervalued currently, underpinned by a strong five-year net profit compound annual growth rate of 16% between 2023 and 2028.