中國白酒業(yè)：一個1200億美元的市場變成了寡頭壟斷

1、 cGlobalResearch5 December 2019China Baijiu SectorUBSEvidenceLabinside:aUS$120bnmarket transforming into anoligopolyContinued positive read-through for household demand of higher-end baijiu We leverage UBS Evidence Labs China Premium Alcohol Demand Survey of 1,050 affluentalcoholconsumersintop-andse

2、cond-tiercitiestogaugehouseholdsbuying powerandbehaviourrelatingtohigher-endbaijiu.Thesurveys11th biannualiteration, inAugust2019,revealedhouseholdsstill-healthydemandforhigher-endbaijiuinthe past/nextsixmonthsduetogoodincomeandassetvaluegrowthexpectations,despite the weaker economy. Baijiu had a re

3、tail market value of US$120bn in 2018, making China the largest spirits market globally. The results make us more confident that the sectors steady structural growth could continue, chiefly driven by secular household- led premiumisation. Our global comparison and industry structure analyses indicat

4、e promisinggrowthprospectsformajornamesasthemarkettransformstoanoligopoly. Wethinkinvestorscouldstillbeundervaluingthebaijiusectorslong-term,high-growth visibility.Slow growth and weak cyclicality to be baijiu sectors key characteristicsOurproprietarybaijiumodelsuggestspremium/high-endsegmentsretail

5、valueCAGR could temper from 38%/30% in 2015-19E to 11%/16% in 2019-21E. This is mainly duetohigherbases,withlikelynoretailpricegrowthin2020Eafterthestronger-than- expectedrallyin2019.Baijiusstructuralsupply/demandchangessince2013andthe changes in the major overseas spirits markets indicate the baiji

6、u sector has become muchlesscyclical,potentiallyofferingsteadygrowthinthefuture.Inaddition,wethink thepremiumisationtrendcouldbelessimpactedbyeconomicuncertaintiesovertime.A stratified oligopolistic market structure is emerging graduallyThe baijiu market could be shifting from a pyramid to a dumbbel

7、l structure as premiumisationcontinuesoverthenextonetotwodecades.Inourview,thepremium segment has become a stable oligopoly, offering a decent growth outlook. We think the high-end segment has some oligarch candidates. These are strengthening their competitive advantages in the still-fragmented regi

8、onal markets via management improvements and investments in their brands andchannels.High growth visibility in the long term could justify the valuation premiumOur preference order is based on risk/reward: 1) Yanghe (attractive re-rating upside potential on business turnaround); 2) Wuliangye, Moutai

9、 and Laojiao (high growth visibility);3)ShanxiFenjiuandSwellfun(expectationstoohigh).Chinasbaijiusectoris tradingat24.0 x2020EPEonaverage,belowitsglobalspiritspeersaverageof25.6x.Distillers & BrewersChinaEquitiesBrad ChenDistillers & BrewersChinaEquities HYPERLINK mailto:brad-a.chen +86-213-8668985F

10、rank HYPERLINK mailto:frank.su +86-213-8668811Figure 1: Summary valuationsShare pricePrice targetMarketcap PE(x) EV/EBITDA(x) Net cash/ market capDividend yield (%)EPS CAGRROIC (post tax) (%) (Rmb)Rating(Rmb)(Rmb bn)2020E2021E2020E2021E2020E2020E2019-21E2020E2021EYanghe99.98Buy142.0015116.013.610.18

11、.319%4.115.77891Wuliangye128.45Buy169.1049922.619.014.611.915%2.722.0157210Kweichow Moutai1122.33Buy1499.001,41027.222.618.114.711%2.020.4200234Luzhou Laojiao81.72Neutral87.0012011.99%3.120.66868Shanxi Fenjiu88.08Neutral90.007730.225.720.317.15%3.319.94547Swellfun56.51Sell43.002830.225.620.817.43%1.

12、318.15347Above data as of 4 December 2019. Source: Company data, UBS-S estimates HYPERLINK / This report has been prepared by UBS Securities Co. Limited.ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ONPAGE41. UBSdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,invest

13、orsshouldbe aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.China Baijiu SectorUBS-S Research THESIS MAPa guide to our thinking and whats where inth

14、isreport HYPERLINK l _bookmark2 OURTHESISINPICTURESMOSTFAVOUREDLEAST FAVOUREDJiangsuYanghe,WuliangyeYibin, KweichowMoutaiSichuan Swellfun, Shanxi Fenjiu, Luzhou LaojiaoPIVOTALQUESTIONSQ: Can rising household consumption bolster demand for higher-end baijiu in 2019-21E with the uncertain economy impa

15、cting business-relatedconsumption?Yes.Webelievethecontinueddemandforandtobaijiuby couldsustainvaluegrowthintheintheshortFromaangle,wethinkbaijiustoconsumptionisonlyhalfMajor have their and pricing well in to that could We expect valueCAGRsof11%/16%inthe38%/30%in HYPERLINK l _bookmark3 Q: Can major b

16、rands gain further shares in the US$120bn market via regional expansion? Yes, owing to leading and rising in and to to meet the towards the TheycouldalsoM&Astoseekextragrowth.Weallthenameswecover,aswell as with sound and/or cash, could in the as the evolves from to and HYPERLINK l _bookmark4 moreUBS

17、-SVIEWWeexpect:1)thehigher-endbaijiusegmenttohaveslowerbutsustainablegrowthin2019-21Eand weak cyclicality, given rising household consumption; and 2) leading baijiu names to gain market sharesviaregionalexpansion,drivingthemarketsshifttoastratifiedoligopoly.EVIDENCE1)TheUBSEvidenceLabChinaPremiumAlc

18、oholDemandSurveysuggestedhouseholddemandand consumptionupgraderemainedhealthyduetoexpectationsofdecentincome/assetvalueoutlook;2) ourinternationalcomparisonshowsChinasbaijiuretailASPstillhasattractiveupsidepotentialfrom premiumisation (price/mix); and 3) our baijiu industry structure analysis demons

19、trates major baijiu namesstillhaveconsiderablegrowthprospects,chieflyfromregionalexpansionandconsolidation.WHATSPRICEDIN?Thebaijiusectorhasre-ratedsignificantlyYTDowingtostrongearningsgrowth.However,wethink investors could still be undervaluing baijius long-term, high-growth visibility and ROIC, esp

20、ecially amid the downtrend of risk-free rate globally. HYPERLINK l _bookmark5 moreChinas baijiu market is reshaping from a pyramid to a dumbbell structure owing to premiumisationSource: Euromonitor, National Bureau of Statistics of China, UBS-S estimatesChina Baijiu SectorUBS-S ResearchOURTHESISINPI

21、CTURES HYPERLINK l _bookmark0 return 100%Premium/high-end baijiu consumption structurePremium High-end Premium High-end Premium High-end Premium High-end 201220172018Future35%43%39%51%40%28%Premium High-end Premium High-end Premium High-end Premium High-end 201220172018Future35%43%39%51%40%28%28%63%

22、48%55%45%47%22%22%35%60%Premium/high-end baijiu consumption has become household-driven, with government-related consumption significantly reduced and business-related consumption likely to drop over time. We think channel inventories are generally well-managed, and leading names have more effective

23、 strategies and greater risk awareness. Baijiu has also become much less cyclical than before.Reasons respondents cited for drinking less baijiu (past 12 months)201720180%20%40%60%80% 20172018More health conscious nowExperimenting other alcoholicbeveragesMyfamily/friendsdrinkthislessthanbefore Other

24、 alcoholic beverages offer more brands/ varieties (e.g. flavor, strength) nowIamboreddrinkingthisThebrandsIdrinkarelessaffordablenow DontprefertobeseendrinkingthisanymoreMy income has declined Im going out to bars or restaurants lessoften10.913.115.48.710.913.115.417.619.535.040.244.9504540353025201

25、5105200420052006200720082009201020042005200620072008200920102011201220132014201520162017%ofrespondentsnotinganincreaseinbaijiuspending overthepast/next6monthsPast6monthsNext 6months60%50%40%30%20%10%Consumers rising health concerns could encourage them to drink less baijiu in total but more premium

26、baijiu, as they associate a higher price with higher quality, according to UBS Evidence Labs China Alcoholic Beverages Consumption survey. This is known as the drink less but drink better trend.20182019E2020E2021ESteadily growing household income could be a structural growth driver for baijius secul

27、ar premiumisation.20182019E2020E2021EIn the August 2019 UBS Evidence Labs China Premium Alcohol Demand Survey, the percentage of respondents who have increased/will increase spending on baijiu in the prior/next six months remained stable on a historically high base.July-14Jan-15July-15Jan-16July-16J

28、an-17Oct-17Jan-18July-18Dec-18Aug-190%July-14Jan-15July-15Jan-16July-16Jan-17Oct-17Jan-18July-18Dec-18Aug-192018 retailASP2018 retailASP0US$/litreUS$/litreNew ZealandAustraliaItalyTaiwanFranceCanadaSpainUKGermanyUSChinaJapanRussiaUS$010,000 20,000 30,000 40,000 50,000 60,000 70,0002018 per capita GD

29、POur global comparison of the major spirits markets suggests baijius retail ASP in China has greater potential than its per-capita consumption volume, as Chinas per- capita GDP grows in the long term. We think the key driver will be consumption upgrade.Spirits market concentration by country (volume

30、, 2018)68%68%59%57%51%50%100%68%68%59%57%51%50%80%91%60%91%78%40%78%20%South KoreaTaiwanGermany0%South KoreaTaiwanGermanyCanadaAustraliaFranceJapanChinas baijiu sector is still relatively fragmented (baijiu accounts for about 94% of the consumption volume of spirits in China in 2018). Consolidation

31、could be a long- term driver for market leaders through: 1) growing in the higher-end segment; and 2) gaining market shares in the low-end and mid-rangesegments.CanadaAustraliaFranceJapan100%90%80%70%USUK48%Russia32%24%China22%CR5USUK48%Russia32%24%China22%1%0%1%0%1%0%1%0%0%0%12%0%0%1%1%1%1%1%1%1%1%

32、1%1%14%12%12% 13%13%14% 15%16%85%87%88% 87% 87% 86%85%84% 83%82%New ZealandThe baijiu sector could continue upgrading and concentrating towards the still-small (by volume) higher- end segments in the long term. Well-positioned major brands with robust strategies could continue gaining market shares,

33、 we believe.60%2012201320142015201620172018 2019E 2020E 2021ELow-endsegmentMid-ranged segmentHigh-endsegmentPremium segmentMSCI China Consumer Staples 12-month forward PE vs30 Chinas risk-freerate2520151001/0907/0901/1001/0907/0901/1007/1001/1107/1101/1207/1201/1307/1301/1407/1401/1507/1501/1607/160

34、1/1707/1701/1807/1801/1907/195.0%4.5%4.0%3.5%3.0%2.5%2.0%Historically, we think a downward risk-free rate generally favoured the valuation of consumer staples stocks globally, especially those with high earnings growth visibility.MSCIChinaConsStap12-monthforwardPE China risk-free rate(RHS)Sources fo

35、r exhibits above: Company data, Euromonitor, National Bureau of Statistics, UBS Evidence Lab, UBS-S estimatesChina Baijiu SectorUBS-S ResearchPIVOTALQUESTIONS HYPERLINK l _bookmark1 return Q: Can rising household consumption bolster demand for higher-end baijiu in 2019-21Ewith the uncertain economy

36、impacting business- related consumption?UBS-S VIEWYes.Webelievethecontinuedforandconsumptionto higher-end baijiu1 by households could retail value growth in the higher-end segments in the short term. From a angle, we think higher-end is probably only halfway to becoming a Majorbrandshavegenerallyman

37、agedtheirchanneland well in response to the economic that could impact consumption. We expect 2019-21E retail value CAGRs of inthesegmentsversus38%/30%inEVIDENCEAccording to UBS Evidence Labs China Premium Alcohol Demand surveys:In the August 2019 survey, the percentages of respondents who have incr

38、eased/wouldincreasespendingonbaijiuintheprior/nextsixmonths remainedstablefromahighbase.Theiraveragemonthlyspendingalso reached a new high.Among respondents reasons for spending more on baijiu, the “volume” factor (purchase quantity and frequency) stayed healthy for self- consumption and gifting in

39、2018/19, while the price factor (selling price and premiumisation) became relativelyweaker.For respondents, all 15 baijiu brands in the survey except Moutai had a higherpenetrationinnon-businessoccasionsandself-consumptionthan in business occasions andgifting.Fromanincomeandwealthperspective:a)mostr

40、espondentsexpected their households income (mainly salaries and investments in financial products) and wealth (property value and savings) to increase over the next 12 months and five years in the August 2019 survey; and b) generally,respondentschangeinbaijiuspendingwaspositivelyrelated to changes i

41、n their householdsincome.WHATS PRICED IN?We believe many investors still underestimate higher-end baijius growth resilience in the near term and growth potential in the long term owing to households secular consumption upgrades. In addition, we think investors have turned less optimistic due to risi

42、ng economic uncertainties.1 Inthisreport,wedivideChinasbaijiusectorintofoursegmentsaccordingtoproductretail prices (unless otherwise stated): 1) premium (retail prices: Rmb500/500ml); 2) high-end (retail prices: Rmb300-500/500ml); 3) mid-range (retail prices: Rmb100-300/500ml); and4)low-end(retailpr

43、ices:Rmb100/500ml).Wedefinethepremiumandhigh-endsegments as irend egen in is epo.UBS Evidence Labs China Premium Alcohol Demand Survey focuses on households demand for premium spirits in ChinaThis report mainly leverages a UBS Evidence Lab asset the China Premium AlcoholDemandSurvey.Thesurveyiscondu

44、ctedonlinebiannuallyandcoversfirst- andsecond-tiercitiesinmainlandChina.Respondentsareaffluentconsumerswith an annual household income of over Rmb180,000, have purchased alcoholic beveragesatleastmonthlyandmusthavemetspendingcriteriaforcognac,whisky or baijiu. We focus only on baijiu in this report.

45、This survey (the 11th iteration) was conducted in August 2019. In total, 1,050 affluent alcohol consumers were interviewed (including 859 baijiu drinkers). The previous surveys were conducted among a comparable target of respondents in July 2014, January 2015, July 2015, January 2016, July 2016, Jan

46、uary 2017,October 2017, January 2018, July 2018 and December 2018.This survey could be a better gauge of household demand for higher-end baijiu thanofbusiness-relateddemand,althoughrespondentswerealsoaskedquestions related to business-relatedoccasions.Figure 2: Consumption structure of premium baiji

47、u is shifting to householdsFigure 3: Consumption structure of high-end baijiu is also shifting to households100%GovernmentBusinessHousehold100%GovernmentBusinessHousehold80%60%80%5%13%15%5%13%15%50%39%40%28%48%45%22%35%60%40%20%40%20%43%35%43%35%2%2%63%2%51%47%50%28%22%55%201220172018Future0%2012201

48、72018FutureNote:Basedoncheckswithdistributors. Source: UBS-SestimatesNote: Based on checks with distributors. Source: UBS-S estimatesFrom fast growth, strong cyclicality phase to slow growth, weak cyclicality phaseThebaijiusectorssalesgrowth(ex-factory)acceleratedin2014-17.Wethinkthis was driven pri

49、marily by household-led premiumisation to higher-end baijiu owing tosuchfactorsasgrowingincomeandassetvalues,andrisingawarenessofhealth issues. In addition, we think the accelerated premiumisation trend was also supported by: 1) robust fixed-asset investments (FAI) growth and recovered corporate pro

50、fitability from governments supply-side reform; 2) recovery in business-related consumption; and 3) compliant government consumption. However,thesectorsrevenueCAGRin2014-17wasstillmuchslowerthanthatin 2002-12.We think baijius sales growth has been tempering since Q318 as cyclicaldrivers graduallywea

51、kensamidrisingeconomicuncertaintiesinChina.Therewasanover- correction in Q418, owing to China-US trade friction, and there has been a mild reboundsinceQ219owingtoeasingconcernsoverthetradetensionsandrelaxed monetarypolicies.Despitethemoderation,wethinkdemandforhigher-endbaijiu, baijius revenue growt

52、h and leading baijiu brands sales growth have generally remained resilient since mid-2018, suggesting Chinas baijiu sector has become much less cyclical than before.Figure4:Fromalong-termperspective,thebaijiusectors sales growth has decelerated since 2013 but become less cyclicalFigure 5: The baijiu

53、 sectors revenue growth rebounded slightly since Q219 after an over-correction in Q41845%40%35%30%25%20%15%10%5%0%-5%BaijiusectorsalesgrowthYoY(ex-factory)FAIy/y18%BajiuBajiusectorsalesgrowthYoY(ex-factory)14%12%10%8%6%4%2%2014201520142015M716 2016 M617 2017 M518 M618 M718 M818 2018 M219 M319 M419 M

54、519 M619 M719 M8192001 2003 2005 2007 2009 2011 2013 2015 2017 M819Source:NationalBureauofStatisticsofChinaSource: National Bureau of Statistics ofChinaFigure 6: Chinas property value growth has decelerated, indicating relatively weaker wealth effectsFigure 7: Chinas FAI has slowed%Newresidentialhou

55、sepriceof70majorcitiesYoY40 Tier1citiesTier2citiesTier3cities35302520151050-5-1025%20%15%10%5%0%Growth in infrastructure investment has trended down sharplyInfrastructure FAI YoYInfrastructure FAI YoYManufacturingFAIYoYProperty FAIYoY01/11 01/12 01/13 01/14 01/15 01/16 01/17 01/18 01/1903/15 09/15 0

56、3/16 09/16 03/17 09/17 03/18 09/18 03/19 09/19Source:NationalBureauofStatisticsofChinaSource: National Bureau of Statistics ofChinaFigure 8: Monetary supply hasremainedneutralFigure 9: PMI has stayed below50%45%40%35%30%25%20%15%10%5%0%China M1/M2YoY China ChinaPMI54535251504948474601/1407/1401/1507

57、/1501/1607/1601/1707/1701/1807/1801/1907/194501/1407/1401/1507/1501/1607/1601/1707/1701/1807/1801/1907/19M2 YoYM1 YoYM2 YoYM1 YoYSource:NationalBureauofStatisticsofChinaSource: National Bureau of Statistics ofChinaFigure 10: A-share companies aggregate earnings growth* has decelerated and profitabil

58、ity has contracted100%0%-20%-40%-60%-80%A-shareA-sharecompaniessalesandnetprofitgrowth(excluding financial companies)Chg.innetmarginYoY(RHS)Revenue growth YoY Net profit growthYoYQ109 Q409 Q310 Q211 Q112 Q412 Q313 Q214 Q115 Q415 Q316 Q217 Q118 Q418 Q3192.0%1.5%1.0%0.5%0.0%-0.5%-1.0%-1.5%-2.0%*Exclud

59、ing financial companies.Source: National Bureau of Statistics of China, WindFigure 11: Premium baijius pricing has cooled down since September 2019, after the rally in H119 (wholesale)2,4002,5001,9002,4002,5001,9002,0001,4001,5009001,0004000123456789500Wholesale priceFigure 12: Premium baijius prici

60、ng has cooled down since September 2019, after the rally in H119 (retail)Rmb/500ml3,000Retail price01/0901/101/101/101/101/101/101/101/101/101/101/0901/1001/1101/1201/1301/1401/1501/1601/1701/1801/19Normal 53FeitianMoutai52NormalWuliangye Normal 53FeitianMoutai52 Normal Wuliangye01/0901/101/101/101/