The recent situation in the baijiu industry is truly beyond words!

This afternoon, the stock price of Kweichow Moutai suddenly broke through the 1,400 yuan mark, with a drop of 1.7%. This is not just about Moutai, but the entire baijiu sector is declining, including Jinshiyuan, Laiyifen, Yingjia Gongjiu, Luzhou Laojiao, Shanxi Fenjiu, etc., all with significant drops.

Why is this happening? It turns out that UBS has downgraded the baijiu sector, changing the ratings of Kweichow Moutai, Wuliangye, Luzhou Laojiao, and Yanghe shares from "Buy" to "Neutral." It seems this is the main reason for the decline in baijiu stocks today.

In fact, recently, Northbound funds have been continuously selling Kweichow Moutai. Just last week, Northbound funds outflowed 11.417 billion yuan, of which Kweichow Moutai was sold for 2.08 billion yuan. This is consistent with UBS's view.

Specifically, UBS analyzed that the inventory issues of Kweichow Moutai, the expansion of industry leaders, and the not-so-optimistic macroeconomic impact may make the supply and demand relationship of the baijiu industry more tense in the next year. They estimate that from 2016 to 2023, 14 to 15 months of Moutai liquor were actually hoarded in the market as inventory, with an average cost of about 2079 yuan per bottle, about 10% lower than the current market price.

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If the big players in the baijiu industry cannot control the supply reasonably, especially when demand is not strong, UBS predicts that by the end of 2025, the wholesale prices of Kweichow Moutai and Wuliangye may drop by 50% and 17% respectively. It may stabilize by 2026, but by then, the total profits of the five major baijiu companies may be 11% lower than in 2023.

In addition, by 2025, the production capacity of the six major baijiu companies will increase by 37% compared to 2023. However, the number of main baijiu consumer groups (men aged 30 to 59) is decreasing, which may lead to a 13% decrease in sales from 2023 to 2025. UBS believes that these are structural issues faced by the industry, which will offset the trend of baijiu moving towards high-end development.

For these reasons, UBS has reduced the expected profits of the seven baijiu companies they cover by an average of 4% for 2024 and 11% for 2025, and downgraded the ratings of Moutai, Wuliangye, Laojiao, and Yanghe. At the same time, they also recommended selling Shuijingfang and Fenjiu, as these two companies are overvalued.

From April to now, foreign capital has continued to sell Kweichow Moutai for more than 10 billion yuan, and this trend seems to be consistent with UBS's analysis. It seems that the baijiu industry may face a period of unrest.

Domestic capital's view on baijiuRecent data indicates that although public mutual funds still regard Kweichow Moutai as the top heavy stock, holding more than 80.7592 million shares with a market value of 118.505 billion yuan, some star fund managers have begun to reduce their holdings, and even completely withdraw from this stock.

Jiao Wei, the manager of the Yinhua Affluence Theme, reduced his holdings of Kweichow Moutai in the second quarter, causing it to disappear from the top ten heavy stocks. Well-known fund managers such as Li Xiaoxing and Zhu Shaoxing have also followed similar operations. This has led many people to start thinking, is Kweichow Moutai still worth long-term investment?

There is a saying in history that time is the standard to test everything. Kweichow Moutai has a long history and has always been regarded as a model of value investment. The current market movements may be more based on considerations of future expectations and current valuations.

Data from Galaxy Securities points out that after the holding ratio of the liquor industry reached a peak of 15.1% in the fourth quarter of 2020, this ratio began to fluctuate and decline, and by the second quarter of 2024, it had dropped to 9.9%. This change is similar to the market attitude in 2018, when the market had a neutral view of the liquor plate, believing that the risk of excessive liquor holdings had been released.

Since the 2008 financial crisis, the liquor industry has experienced several important adjustments in the past 16 years. In 2012, due to the impact of the policy to restrict three public consumptions, the liquor industry suffered a significant adjustment, with profits in 2013 falling by 12% year-on-year, which was the lowest point in the history of plate valuation. In 2016 and 2018, the liquor industry also went through adjustment periods, all of which were based on the actual performance of the industry and the impact of the external macro environment.

Galaxy Securities believes that under the background of the "14th Five-Year Plan", high-end and excellent sub-high-end and regional liquor companies will maintain stable performance growth from 2024 to 2025, and the entire plate will show strong growth resilience.

The analysis of CICC points out that with the intensification of industry competition, those liquor companies with obvious advantages in brand, organization, and channels will be able to expand market share. It is expected that the top 10 to 20 companies in the industry will continue to enjoy the benefits brought by industry centralization in the future.

Therefore, although some fund managers have begun to adjust their holdings, the long-term value and market position of Kweichow Moutai are still optimistically viewed by many analysts. These adjustments may reflect more short-term market fluctuations and strategic configuration changes, rather than necessarily representing a change in Moutai's long-term prospects. For investors, whether to continue holding or investing in Kweichow Moutai, they should consider their investment goals and market conditions comprehensively.