Restocking cycle to continue; revising up TP to Rmb745

We estimate Moutai’s current channel inventory equals six months of Moutai'sreal consumption, indicating there is still room for distributors and high-wealthindividuals to fill up their warehouses. More importantly, this would leavemanagement time to deal with the channel stocking problem. Meanwhile, weidentify three possible catalysts that might trigger channel de-stocking, andbefore these catalysts are triggered, we expect less risk of a strong de-stocking.We are revising up Moutai’s TP to Rmb745 and we maintain Buy.

Current channel inventory equals six months of real consumption

We think Moutai’s strong sales recovery from 2016 has been mainly driven byboth channel restocking and a consumption upgrade. Therefore, it is importantfor investors to gauge the water line in the channels. Based on historical channelinventory movement, Moutai’s ex-factory supply, and Moutai’s real consumptionpattern, we estimate that currently there are 12,000 tons of Moutai in distributors'and investors' warehouses, representing six months of real consumption in 2017.Compared with the peak level of 12 months in 2012, this implies there is roomfor channels to stock up (Figure 1).

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