Shanxi Fen Wine Earnings: Results Slightly Beat on Margin Expansion, Demand Remains Robust

Despite sluggish consumer confidence in China, wide-moat Shanxi Fen Wine posted solid 22% and 21% year over year sales growth in 2023 and first-quarter 2024, respectively. The robust sales were largely in line with our expectations, but both 2023 and first-quarter net profit came in slightly ahead of our estimates, as lower-than-expected marketing and selling expenses helped to lift operating margins. We keep our 2024-26 revenue assumptions broadly unchanged, but we lift 2024-26 net profit forecasts by 5%-7% amid improving cost efficiencies. Accordingly, we raise our fair value estimate to CNY 259 per share, from CNY 246. We continue to believe Fen Wine is the key beneficiary of rising popularity of light-flavored baijiu in China. We expect expanding sales in the nationwide market, along with the company’s premiumization efforts, to continue to drive a robust sales growth outlook for Fen Wine over the next five years.