J.P. Morgan: Kweichow Moutai returns to growth in the third quarter, but valuation premium limits upside

How significant was the third-quarter improvement?

Kweichow Moutai’s revenue rose 3% year on year to 40 billion yuan in the third quarter of 2026, in line with expectations and a return to growth from a 5% decline in the second quarter; net profit rose 4% year on year.
JPMorgan attributes the company’s resilience to its brand strength and control over its channels: combined earnings at the other listed consumer baijiu peers covered by the bank fell 50% year on year in the third quarter, following a 54% decline in the second quarter.
Earnings quality did not improve across the board: the third-quarter net margin was broadly stable at 49.5% because lower baijiu-related taxes and fees offset a decline in gross margin. Excluding finance-related cash flows, adjusted operating cash flow rose 9%, mainly driven by a decline in accounts receivable.

Premium liquor, including Feitian and aged-vintage liquor, posted year-on-year sales growth of 1% in the third quarter, compared with a 1% decline in the second quarter; series liquor products, including Moutai 1935, grew 22%, compared with a 25% decline in the second quarter.
Sales on the iMoutai platform increased 8-fold, accounting for 46% of the group’s third-quarter sales; meanwhile, sales through traditional distribution channels fell 22%. Growth was thus accompanied by a marked change in the channel mix.
JPMorgan’s distributor channel checks show that Feitian’s sales momentum was stable, aged-vintage Moutai recovered from the second quarter, and channel prices showed signs of stabilizing; following a price adjustment, Moutai 1935 offered relatively better value for money, helping sales recover.

JPMorgan forecasts full-year 2026 revenue and earnings growth of 1.9% and 0.4%, respectively, implying fourth-quarter growth of 2% and 3%, respectively. Its earnings forecast is only about 1% below market consensus, so it considers the consensus relatively achievable.
Revenue support includes two increases in Feitian’s ex-factory price in March and July, stable premium-liquor sales, and a recovery in Moutai 1935. Profit benefits from expense normalization: the bank expects fourth-quarter selling and marketing expenses to fall 14% year on year, after rising 98% in the prior-year period because of spending related to destocking.
The bank raised its earnings forecasts for 2026 through 2028 by 1%, but its model forecasts a full-year gross margin of 87.9% for 2026, below 89.5% in 2025.

JPMorgan sees valuation as the main constraint: Moutai trades at approximately 20 times expected 2027 earnings, above roughly 16 times for Chinese consumer staples and 12 times for consumer discretionary stocks; a dividend yield of about 3.6% offers limited support.
The bank believes brand strength can support a premium to the sector, but a return to the company’s average price-to-earnings multiple of 24 times over the past 20 years would be difficult in a weak macroeconomic environment. It raised its price target for June 2027 from 1400 yuan to 1410 yuan and maintained its neutral rating.
In the bank’s view, sustained valuation gains require continued progress in direct sales and clearer evidence of a recovery in household wealth; the Spring Festival is the next important demand window.