Kweichow Moutai (600519 SH, RMB1480.00, RMB1.85tn) Core Demand Stabilizes

Kweichow Moutai reported a sequential improvement in 3Q26, with total revenue rising around 3% YoY to RMB41bn and attributable net profit increasing 3.8% YoY to around RMB20bn, reversing the decline seen in 2Q26. Demand for core Feitian Moutai remained resilient following further price increases, while wholesale market prices also stabilized. By contrast, non-standard Moutai products remained weak, while the recovery in Series Liquor was partly supported by a low base and higher marketing spending. Traditional wholesale channels also rebounded meaningfully QoQ, suggesting a balanced pricing and channel structure has been achieved.

Feitian Price Hike Supported Growth: Moutai liquor revenue reached RMB35.2bn, up 0.8% YoY and around 11% QoQ, accounting for approximately 86% of total revenue. During 3Q26, the contracted price of Feitian Moutai increased by around 7.9% from RMB1,269 to RMB1,360. Channel feedback suggests that sell-through remained stable despite consecutive price hikes, indicating resilient underlying demand.  As such, it is believed that sales of non-standard products have yet to provide much improvement after two full quarters of agency-based sales model.

Series Liquor Recovered with On-going Channel Optimization: Series liquor revenue increased around 22% YoY to approximately RMB5bn while remaining broadly flat QoQ, mainly supported by a low base, channel normalization and higher marketing costs.  The number of distributors declined from 2,307 at end-2Q26 to 2,285 at end-3Q26, with the net reduction of 22 entirely related to Series Liquor. The Mgt previously guided for Series Liquor revenue to remain above RMB20bn for the full year, while approximately RMB18bn had already been achieved in 9M26.

Achieving A More Balanced Distribution Structure: Direct-sales revenue rose around 40% YoY to RMB21.8bn and declined only slightly QoQ, however, its share of total revenue fell from about 64% in 2Q to roughly 53% in 3Q. iMoutai platform contributed around RMB18.3bn, broadly unchanged from 2Q26, while self-operated store revenue remained under pressure due to the change in distribution model for non-standard products and softer end demand. Wholesale and agency revenue was down by around 22% YoY at approximately RMB18.4bn but rebounded around 29% QoQ from RMB14.3bn in 2Q26, reflecting a recovery in traditional channel activity. The Mgt also appears increasingly focused on balancing supply across iMoutai, self-operated stores and distributors to support wholesale pricing and distributor profitability, rather than simply expanding direct-sales penetration.

Earnings Recovered despite Continued GPM Pressure: GPM stood at approximately 89.8% in 3Q26, down around 1.6 ppts YoY but improving 0.4 ppt QoQ from 89.4% in 2Q26, mainly due to weaker sales of higher-margin non-standard products and higher production costs. Operating expenses were around RMB3.3bn, with the OPEX ratio declining to 8.2% from 9.15% in 2Q26. Selling expenses increased around 33% YoY to RMB1.6bn amid stronger promotion for series liquor and peak-season demand, while administrative expenses declined around 7%, partly offsetting the increase. The tax and surcharge ratio also fell to around 15.1% from approximately 17.5% in 2Q26. As a result, attributable net profit increased 3.8% YoY to around RMB20bn, reversing from the 7% decline in 2Q26, while NPM improved to around 48.7% from 46%.

Cash Collection Remained Solid with a Healthy Balance Sheet: Cash received from product sales reached around RMB45.1bn in 3Q26, up around 3% YoY, indicating continued solid cash collection. Net cash stood at around RMB49.9bn at end-3Q26, while inventory remained broadly stable QoQ at approximately RMB61.4bn. Contract liabilities declined from RMB3.18bn at end-2Q26 to RMB2.08bn, down around 34% QoQ, mainly reflecting the higher direct-sales mix and changes in advance-payment policies.

Our View: We believe Moutai’s business is stabilizing from the weakness seen in 2Q26, showing strong resilience. Feitian Moutai sell-through remained stable despite consecutive price increases, while wholesale market prices have stabilized at around RMB1,700, suggesting that underlying demand and pricing power remain intact.

Channel reform will continue. Since adopting direct sales and iMoutai to regain greater control over pricing and channel inventory, the traditional wholesale channel rebounded in 3Q26. It is expected that the priority will be to balance prices across various channels to restore a healthy ecosystem. As iMoutai also acts as an important pricing anchor, excessive low-priced supply could pressure wholesale prices and distributor profitability, making a more balanced channel structure increasingly important.

Given that 9M26 profit is already around 78% of FY25 earnings of RMB82.3bn, adding to the low base in 4Q25, we expect full-year earnings to remain stable with potential for modest growth. Up-front orders for Chinese New Year could provide further support. Compared with most consumer companies and domestic liquor peers, Moutai continues to demonstrate solid demand, cash generation ability and brand strength.  We believe a valuation of below 20x P/E would offer an attractive entry point for long-term investment. The counter is trading at 22x FY26E P/E, 20x FY27E P/E and an est. 3.5% dividend yield. (Research Department)