白酒行业

CitigroupResearchisadivisionofCitigroupGlobalMarketsInc.(theFirm),whichdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbeawarethattheFirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.Non-USresearchanalystswhohavepreparedthisreportarenotregistered/qualifiedasresearchanalystswiththeNYSEand/orNASD.~1CitigroupGlobalMarketsAsiaNotfordistributioninthePeople'sRepublicofChina,excludingtheHongKongSpecialAdministrativeRegion.CitigroupGlobalMarkets|EquityResearchFigure1.ChinaSpiritsIndustry:ValuationSnapshotPricePriceETRPEEPSCAGRROENameRatingCurrentTarget(%)06E07E08E09E06-09E09-12E07E08EKweichowMoutai1L94.8119.827.759.243.628.021.939%22%31%38%LuzhouLaojiao1M30.737.322.879.448.928.520.159%26%24%35%Wuliangye2M32.736.612.175.856.539.731.834%22%18%21%ShanxiFenjiu3H34.933.0-4.357.840.828.323.336%18%31%38%Source:CitigroupInvestmentResearchestimates;ETR=expectedtotalreturnAsiaPacificBeveragesIndustryIn-Depth10April2007|60pagesChinaSpiritsIndustryHigh-endPlayersLeadIndustryGrowthIndustrystillatearlystageofconsolidation—RapidorganicgrowthatChina'sleadingspiritsproducershaslimitedanyimpetusforindustryconsolidation.Thetop5distillershaveacombinedmarketshareofonly22%andthetop25brandsclaimjust14%ofindustrysales,leavingampleroomforfurthergrowth.Topplayersbenefitfromhighbarrierstomarketentry—Chinesespiritsarecategorizedintoflavortypes,withthethreemostpopularbeingassociatedwithLuzhouLaojiao,KweichowMoutaiandShanxiFenjiu.Also,premiumspiritsareanacquiredtastederivedfromage-oldproductionfacilitiesandsomeblendingofvintagespirits,whichcannotbeeasilyreplicatedbywould-becompetitors.High-endplayersleadindustrygrowth—Giventheirprotectedmarketpositioning,andthuspricingpower,thetopdistillersarepostingfastgrowthinvolumesandrevenuesfortheirpremiumlabels.Overthepastthreeyears,volumesofKweichowMoutaiandWuliangye,thedominantplayersinthepremiummarket,havesurged63%and32%,eventhoughtheirrespectivepriceshavespiked41%and43%.Channelmanagementaffectslong-termcompetitiveness—ThisisbecauseChina’sdistributionchannelsareweaklyregulated,withcross-dumpingandpoorimplementationofpricingpoliciesauniversalheadacheforproducers.Initiatingcoverageontop4players—WeinitiatewithBuyratingsonKweichowMoutaiandLuzhouLaojiao,aHoldon[e-mail]10April2007CitigroupGlobalMarkets|EquityResearch2ContentsInvestmentThesis3KweichowMoutai(Buy/LowRisk):Bestgrowthvisibility3LuzhouLaojiao(Buy/MediumRisk):Growthpotentialnotpricedin4Wuliangye(Hold/MediumRisk):Agiantinthere-making4ShanxiFenjiu(Sell/HighRisk):Growthenginefacesslowdown4IndustryCompetition5Chineseproducersdominatethelocalspiritsmarket5Marketconcentrationislow5Industrygrowth:post-2004recoverywithrisingASPs6Topplayersbenefitfromentrybarriers6Brandstranslateintostrongergrowth7EntryBarriersResultinSignificantPricingPower8ChannelManagementMakesaLong-termDifference9TaxRateUnificationin2008toEnhanceEarnings11Companies12KweichowMoutai(600519.SS)13InitiateatBuy:ProfitingfromFranchiseValue13LuzhouLaojiao(000568.SZ)23InitiatingatBuy:GrowthfromaLowBase23WuliangyeYibin(000858.SZ)35InitiateatHold:AGiantintheRe-making35ShanxiFenjiu(600809.SS)45InitiateatSell:GrowthEngineFacesSlowdown45AppendixA-157AnalystCertification57ChinaSpiritsIndustry10April2007CitigroupGlobalMarkets|EquityResearch3InvestmentThesisWithhistoriesofhundredsofyears,producersoftraditionalChinesespiritshaveloyalconsumerbasesthathavekeptforeigncompetitiontoaminimum.Astheleadingcompaniesgreworganicallyatastrongpaceinrecentyears,andastheyarerelativelysmall,industryconsolidationisataveryearlystage.Thetop5distillershaveacombinedmarketshareofonly22%andthetop25brandsclaimjust14%ofindustrysales,leavingampleroomforfurthergrowth.Chinesespiritsarecategorizedintoseveralflavortypes,theindividualoriginatorsofwhicharepopularlyrecognizedasLuzhouLaojiao,KweichowMoutaiandShanxiFenjiu.Althoughcompetitionamongbrandsisbecomingmoreintense,regularconsumersusuallyremainloyaltoaflavor.Also,highqualityspiritsareanacquiredtastethatisderivedfromage-oldproductionfacilities,geographicallocationandvintagespirits,whichcannotbereplicatedbywould-becompetitorsandthusprovideahighbarriertomarketentry.Withconsumertastesmoldedtotheirbrandsandwithacompetitiveedgeinqualityproduction,thetopChinesedistillershavesignificantlyincreasedtheirvolumes.High-endandmid-marketconsumptionrespectivelymakeup1%and18%oftheindustry’stotalsalesvolume,whichleavesthetophigh-endplayersespeciallywithampleroomtoexpand.Barrierstoentrygiveleadingspiritsproducersnotablepricingpower.Overthepastthreeyears,MoutaiandWuliangye─thedominantplayersinthepremiummarket─haverespectivelyraisedpricesby41%and43%,whilevolumesgrewby63%and32%.Weforecastcontinuedpricingpowerforthetopbrands.Astimegoeson,brandbuildingwithtargetconsumersandexecutionofpricingpoliciesaretwo