Shanxi Fen Wine Earnings: Results Slightly Missed, but Growth Outlook Remains Robust.

Wide-moat Shanxi Fen Wine’s second-quarter growth slowed on a sequential basis with revenue and net profit rising 17% and 10% year over year, respectively, compared with 21% and 30% growth in the prior quarter. The results were slightly disappointing, revealing greater sales pressure of subpremium baijiu. Our channel check indicates sales growth of mainstream products and the flagship Qinghua 20 remain robust, while demand of higher-end products is weakened, amid slower economic growth in China. Inventory level stayed at 1.5-2.0 months, which is still heathy and allows the firm to benefit from upcoming restocking demand ahead of the Mid-Autumn Festival and National Day holidays in China. We expect earnings growth to pick up in the coming quarters, and the firm’s target of 20% sales growth in 2024 is achievable.