Bank of America: Shanxi Fen Wine’s third-quarter profit falls more than revenue; BofA cuts price target but remains positive on long-term market share

Why did third-quarter results miss expectations?

Shanxi Fen Wine reported third-quarter 2026 revenue of 7.338 billion yuan, down 18.1% year on year, and net profit attributable to shareholders of 1.899 billion yuan, down 34.5%, both below Visible Alpha consensus estimates. Revenue and attributable net profit for the first nine months fell 13.8% and 26.9% year on year, respectively.
BofA attributed the weak results to a high base in the prior-year period and the company’s later start in cleaning up its income statement: Shanxi Fen Wine began in the first quarter of 2026, while peers generally began in the second or third quarter of 2025.

The sales mix shifted toward lower-end product lines, and the third-quarter gross margin fell 3.9 percentage points year on year to 54.2%.
Shrinking revenue also pushed up expense ratios: selling and distribution expenses as a share of revenue rose 3.47 percentage points year on year to 13.6%, while the administrative expense ratio rose 0.51 percentage points to 4.9%. The combined effect of gross margin and expense ratios brought the operating margin down 7.5 percentage points to 36.8%.
By channel, wholesale, which accounted for about 90% of third-quarter sales, fell 20% year on year, while e-commerce and direct sales grew 2%; advances from customers fell 3% year on year.

Third-quarter sales outside Shanxi grew 11% year on year, returning to growth from a 12% decline in the second quarter; sales within Shanxi continued to fall, down 18%, and overall revenue still declined 18% year on year.
BofA believes the company, a light-aroma baijiu producer with nationwide scale and strong brand pricing power, has a balanced product mix and a value-for-money positioning, as well as room for further nationwide expansion, giving it an opportunity to continue gaining market share.

BofA lowered its earnings-per-share forecasts for 2026 and 2027 by about 6% and 16%, respectively, to 7.46 yuan and 6.96 yuan. Its model forecasts attributable net profit falling from 12.246 billion yuan in 2025 to 9.103 billion yuan in 2026 and 8.496 billion yuan in 2027, before recovering to 10.39 billion yuan in 2028.
The price target was cut from 143.50 yuan to 129.50 yuan, a reduction of about 10%, while the buy rating was maintained. The target gives equal weight to price-to-earnings and discounted cash flow valuations; the price-to-earnings component uses 18 times forecast 2027 earnings to reflect the industry downturn and economic uncertainty.
Valuation and dividends are another basis for the buy rating: the share price used in the report corresponds to about 15 times forecast 2026 earnings, with an expected dividend yield above 5%.