Original by BCC Global
September 27, 2024 | 10:15 AM
Introduction
After a period of downturn, Maotai’s stock saw a significant 8.8% increase on September 24, closing at 1,372.60 yuan. The daily trading volume reached a yearly high of 13.297 billion yuan. However, despite the surge in stock price, Maotai’s wholesale prices for its liquor continue to decline. Once regarded as a stable, inflation-proof asset with ever-rising prices, the current price drop in the market raises questions about the future of its boom. Is this stock price surge a temporary blip, or is it the beginning of a genuine recovery?
A Single-Day Surge: Stock Price Bottoms Out and Rebounds
Since May 2024, Maotai’s stock price has declined by over 10%, resulting in a loss of over 270 billion yuan in market value. This has prompted concerns about the sustainability of the company’s “fragrant technology” narrative. To stabilize the market, Maotai implemented a series of measures in June, including lifting the unboxing order, limiting new group-buying customers, and controlling delivery frequencies. These measures helped stabilize the wholesale price of Feitian Maotai, lifting it from a low of 2,100 yuan per bottle to over 2,500 yuan. The company’s mid-year performance report also exceeded market expectations, leading many to believe Maotai was out of the woods. However, three months later, both the stock and liquor prices took another hit.
In order to maintain its market value, even Maotai was compelled to take action. On September 20, Maotai announced plans to use 3 billion to 6 billion yuan of its own funds for a share repurchase, marking its first buyback since going public 23 years ago. Furthermore, key stakeholders, including controlling shareholders, board members, and senior executives, have committed not to sell their shares over the next nine months. This move demonstrates Maotai’s proactive approach to managing market fluctuations. Guotai Junan’s latest report predicts that Maotai’s stock price could reach 2,240 yuan, while Huachuang Securities has a higher forecast of 2,600 yuan.
On September 24, the stock surged. By the close of the trading day, Maotai’s stock had reached 1,372.60 yuan, representing an 8.8% increase—the largest single-day rise since November 2022. Its market value increased by 140 billion yuan, reaching 1.72 trillion yuan, which is equivalent to nearly one Luzhou Laojiao. As of September 26, the stock price had risen further to 1,500 yuan, setting a new annual high. Some institutions believe Maotai is effectively utilizing a “toolbox” of measures—such as shareholder buybacks, sustained dividends, and stock cancellations—to deliver tangible benefits to both the market and the company. However, some analysts have advised that, despite the positive news, Maotai is unlikely to sustain a prolonged rally, viewing this as more of a “short-term bounce.”
Wholesale Prices Continue to Plummet, Dampening Product Appeal
While Maotai’s stock price surged, the price of its liquor continued to decline. Since 2022, the retail price of Maotai has been on a downward trajectory. In September 2023, Feitian Maotai was priced at 2,970 yuan, down from 3,210 yuan in mid-2022—a drop of 1,000 yuan per bottle within two years.
In advance of the 2024 Mid-Autumn Festival, Maotai’s prices were subject to a further reduction. Starting from August 17, prices of Maotai products saw a significant decline. This was triggered by the arrival of goods from dealers around the nation in mid-August and late August, respectively. By September 9, the price of a standard box of Maotai had fallen to 2,540 yuan. Following a brief period of recovery, prices once again declined, reaching 2,500 yuan by the Mid-Autumn Festival.
Following the holiday period, prices have yet to recover. As of September 25, the price of a single bottle of Feitian Maotai was 2,200 yuan, representing a 50 yuan decrease from the previous day. The wholesale price for a full case of 2024 Feitian Maotai dropped below 2,400 yuan, settling at 2,320 yuan, representing a 35 yuan decrease from the previous day. Even once highly sought-after special editions, such as the Year of the Dragon Maotai Zodiac, which had previously been selling for up to 6,000 yuan per bottle, have seen prices decline. Following the holiday period, the Year of the Dragon Maotai’s wholesale price continued to drop to 2,490 yuan per bottle, below the official price of 2,499 yuan, with many resellers have now elected to refrain from repurchasing the product.
At the same time, Maotai’s official online platform “iMaotai” has observed a notable decline in the number of requests to purchase the Year of the Dragon edition. This has led to speculation that there is currently limited profitability to be gained from the sale of Maotai products. Even the once-sought-after 500ml Year of the Dragon Maotai Zodiac is no longer in high demand. According to iMaotai data, as of September 22, only 2.379 million people had submitted purchase requests for the Year of the Dragon edition, representing a decline of 120,000 from the previous day and a decrease of 50% from the peak of 5 million recorded at the start of the year.
Dealers are exercising greater caution, with many consumers reluctant to purchase. For gift-giving purposes, fewer people are choosing Maotai this Mid-Autumn Festival. One distributor explained, “In the past, customers often ordered 30 or even 50 cases at a time. This year, they’re only taking five to eight cases.” He attributed the sales slump to price drops and reduced demand, noting that the Maotai “just isn’t selling like before.”
How Can Maotai Weather the Market Storm?
The reduction in Maotai’s wholesale prices can be attributed to a combination of supply and demand dynamics, as well as the financial attributes of the product. The decline in price is indicative of a reduction in market demand, while the fall in stock values reflects a decline in market expectations. On the surface, this year’s price volatility appears to stem from competition between sales channels and resellers. In mid-2024, during a period of sluggish demand, several e-commerce platforms offered substantial subsidies, exacerbating price fluctuations. Retailers purchased Maotai from resellers to benefit from platform discounts, while resellers, facing losses, have recently ceased purchasing certain editions like the Year of the Dragon Maotai.
However, these price fluctuations are external factors which have no impact on Maotai’s ex-factory prices. Provided that prices remain above 1,169 yuan, Maotai’s performance will remain unaffected. In the first half of 2024, Maotai’s sales revenue reached 68.567 billion yuan, a 15.67% year-on-year increase, with both operating income and net profit growth both exceeding 15%.
While Maotai’s liquor prices continue to decline, distributors are experiencing the greatest impact. Maotai’s intricate relationship with distributors has played a crucial role in its market success. However, over the years, distributors have also contributed to various challenges, including corruption scandals. In response, Maotai has implemented significant reforms, reducing the number of distributors from a peak of over 3,000 to just over 2,000. Furthermore, the company has also expanded the share of its direct sales channels, including its own e-commerce platform “iMaotai”, and retail outlets in supermarkets, airports, and train stations.
Although Maotai’s stock and liquor prices have previously experienced turbulence before, it is unclear whether the current downturn is a temporary correction or a sign of deeper structural challenges. As the year-end approaches, Maotai may have to make difficult decisions between controlling prices and managing market supply, aiming for sustainable growth while meeting short-term targets.
At a recent investor meeting on September 23, Maotai Chairman Zhang Deqin asserted that the company’s quality remains steadfast, with a strong market presence and resilience in the face of withstanding market fluctuations. The success of Maotai in recovering from this downturn will depend on its ability to navigate the current uncertain market conditions.
Disclaimer: The content above represents an analysis of relevant events and does not constitute investment advice. All information is based on publicly available sources, expert opinions, and BCC research. No liability will be assumed for losses arising from the use of this information. Investing involves risks; proceed with caution.