Click the image to register for participation. In 2017, Moutai's stock price surged an astonishing 111.89%, while Tsingtao Beer rose 35%. However, excluding the stimulus from Guo Guangchang's aggressive entry into Tsingtao Beer, which drove a 28.19% surge in the final month of 2017, the actual performance growth for the year was pitifully limited. From both personal consumption and investment perspectives, Moutai and Tsingtao Beer have sparked contemplation among consumers and investors, including GPLP. There are countless articles discussing Moutai and Tsingtao Beer; today, GPLP is willing to contribute some of our own thoughts. GPLP believes that the value appreciation of consumer companies comes from three points: 1. Brand value; 2. Product value; 3. Consumption transformation value. But in 2017, the three factors of value appreciation for Moutai and Tsingtao Beer diverged. 1 Is there a fundamental difference in the value of Moutai and Tsingtao Beer? Guo Guangchang once said on WeChat: "During this long-distance cycling trip, I was a poor student, after all, with some embarrassment in my pocket. You see, back then, Tsingtao Beer was rationed, a rare luxury brand. But since I was in Qingdao, how could I not take advantage of the local advantage and taste Tsingtao Beer?" "After careful calculation, he saved two meals and finally got to drink Tsingtao Beer." Similarly, in the 2017 publication "My 50 Years with Moutai," Moutai's veteran Ji Keliang, on his way to report to Moutai, passed a distillery and had a similar sentiment. "I bumped along to Zunyi, and at a restaurant, I saw Moutai wine for sale. When I asked, it was as expensive as 36 cents a cup, but in the end, I gritted my teeth and bought a cup. You know, at that time, ordinary people's wages were only 20 to 30 yuan." Almost identical experiences outline the significance of these two famous liquors to Chinese people: a noble spiritual enjoyment after meals. In terms of brand value, Moutai and Tsingtao Beer have no fundamental difference. 2 The product value of Moutai and Tsingtao Beer has diverged In 2017, besides the Feitian series, Moutai also had Prince Wine, Welcome Wine, Han Sauce, and Xijiu—Moutai was no longer solely reliant on Feitian. There were concerns that the series wines would dilute Moutai's identity, but it turned out that the streamlined series wines did not impact Moutai's brand recognition, yet inadvertently cultivated a consumer base for sauce-flavored baijiu in the 200-500 yuan range. In 2017, series wine sales increased by 183% year-on-year to 6.5 billion yuan (5.5 billion yuan after VAT). While the Feitian Moutai with a gross margin of 90% increased volume, the series wines with a 60% gross margin also expanded aggressively. In 2017, Moutai wine that originally couldn't meet Feitian standards was converted into series wines, inadvertently enhancing the value of the series wines! The taste improved! Moutai's product range has become richer. What about Tsingtao Beer? In June 2017, China's beer industry output was 5.092 million kiloliters, a year-on-year increase of 6.0%. After three years of downturn, China's beer output saw growth for two consecutive months. The market recovered, but this growth did not come from the mass beer market, but from the pull of the mid-to-high-end beer product lines. In Q3 2017, Tsingtao Beer's average unit price was 3.27 yuan per liter. In stark contrast, in the first half of 2017, AB InBev's revenue in the Chinese market grew by 9.1% in total, with sales volume up 2.7%. The company's EBITDA grew 28.6% in the first half. The dual growth in revenue and volume was driven by AB InBev's premium and super-premium brand portfolio. Tsingtao Beer should have been better, but its product ladder was insufficient, and it unfortunately missed the expansion opportunity. (In early 2018, Tsingtao Beer announced partial price increases, which the market interpreted as a signal to cultivate high-end brands, and a limit-up responded positively.) However, the above factors still cannot explain the gap between Tsingtao Beer and Moutai. Because product ladder and consumption habit changes alone can only explain 60% of Moutai's rise. For example, Yanghe shares rose 66.89% in 2017. The extra rise in Moutai is due to its financial attribute. 3 Moutai's victory: Moutai's financial attribute Compared to Tsingtao Beer, GPLP believes that Moutai's victory also lies in its financial attribute. A wise person once pointed out: Moutai's valuation = 20-25 PE + financial attribute. What is a financial attribute? Generally speaking, a financial attribute means it is an investment product. Coincidentally, Moutai is one of the investment products. Whether you recognize it or not, you can despise a product of "water + alcohol" being treated as a financial instrument, just as you might despise the bronze of the Shang and Zhou dynasties as scrap metal. However, the fact is that it indeed possesses financial attributes. For example, the biggest characteristic of financial products is their sharp rises and falls. In 2013, Moutai collapsed, with terminal prices dropping from 2,000 yuan to around 860 yuan, a decline of 60%! A group of Moutai loyalists monitored daily whether terminal store prices would recover, proving that in Moutai's core circle, terminal prices are used as a leading indicator for the stock price. And Moutai's stock price? It fell from 220 yuan to 118 yuan, a similar decline. However, when prices continued to fall, Moutai's bond-like attribute emerged, providing an annual risk-free rate of 4-5%. (Moutai naturally won't go bankrupt; even in 2013, its performance grew, albeit by a mere 1%, with signs of adjustment.) In 2017, Moutai's terminal price rose from 1,000 yuan at the beginning of the year to nearly 1,800 yuan by year-end, roughly replicating Moutai's stock price increase. And in June 2017, when Moutai's wholesale price loosened, the secondary market stock price almost saw a similar and equal decline. At the same time, undeniably, abundant liquidity surged, inflating the prices of various assets. Moutai was also affected. Perhaps in the future, when liquidity tightens extremely, the tide will recede, and Moutai's price will fluctuate again. It remains to be seen how management handles this trend, testing their great wisdom. However, all these joys or pains are things Tsingtao Beer does not have. Tsingtao Beer finds it difficult to raise prices; it can only rely on continuously expanding capacity to boost performance, so naturally its stock price does not experience sharp rises and falls. 4 When do Moutai and Tsingtao Beer go their separate ways? As of November 2017, China's cumulative beer output was 41.75 billion liters, a cumulative decline of 0.1%. As of November 2017, China's cumulative baijiu output was 11.15 billion liters, a cumulative increase of 6.3%. Moutai, a bottle rising from 1,099 to 1,788 yuan, attracts drinkers and buyers like a swarm. Tsingtao Beer, a can at 4.5 yuan, convenient and affordable, yet suffered such a Waterloo. Comparison of attention between Moutai and Tsingtao Beer Over the past decade, China has indeed undergone earth-shaking changes. After per capita GDP surpassed $8,000, China's consumption concept entered a new era. In 2017, the National Development and Reform Commission personally announced: "Currently, our per capita GDP exceeds $8,000. From international experience, this has entered an important stage of comprehensive leap in the service industry." Referring to South Korea's historical experience, when per capita income reaches $8,000, social consumption suddenly surges. In 2017, China's retail sales of consumer goods maintained a high growth rate of over 10.3%, becoming a bright spot in the economy. In 2015, consumption's contribution to economic growth suddenly jumped by 10%, becoming an important pillar supporting that year's economy. Although economic growth and per capita GDP growth remained stable, the consumption contribution rate stabilized. Coincidentally, Moutai began accelerating its recovery in 2015. Moutai kept pace with the times, continuously launching series wines to adapt to changing times and social shifts. "Drink better, drink less" became the most appealing advertisement in the high-end baijiu market. The same applies to beer—high-end beer at 60-80 yuan per can has gradually become popular among young people. The era of treating beer as a beverage and the stomach as a beer barrel is over. The era when being dead drunk showed loyalty is gone; a can of high-end beer may bring more spiritual enjoyment and better meet social needs. Some have calculated that for a 12-person banquet, one bottle of Moutai can allow a pleasant sip. Two bottles can bring a slight buzz. That's only 3,800 yuan. A functional effect that beer cannot achieve in business banquets. However, Tsingtao Beer has not kept up with social changes. Whether in products or marketing, it remains stuck in the last century. More notably, besides the harsher external environment, Tsingtao Beer's internal environment is also not optimistic—in 2017, what troubled Tsingtao Beer was the sale of the 20% stake held by Asahi Group. Asahi Group had long intended to sell its stake. In 2017, Carlsberg, the world's fourth-largest brewer, expressed interest in taking over, but ultimately backed off. Domestic China Resources Beer was also rumored to acquire, but it never materialized. Almost simultaneously, Deutsche Bank downgraded Tsingtao Beer to "Sell." The reasons were simple: Subsidy risk: Tsingtao Beer received subsidies equivalent to 20-25% of its pre-tax income or 40-60% of its free cash flow over the next three years. These subsidies (mainly special project allowances and relocation compensation) are hard to guarantee. Sure enough, less than a month after the announcement, in March 2017, Tsingtao Beer was notified to pay back taxes of 390 million yuan for 2016, reducing profits by 39%. Against the backdrop of zero market growth in 2017, the market entered a stock game. Tsingtao Beer, which had not adjusted its products according to the times, began to see its market position loosen. Throughout the year, Tsingtao Beer's stock trend in 2017 mirrored its performance: ups and downs, consolidating sideways. It only soared after the news of Fosun's entry. As of September 30, 2017, Tsingtao Beer's revenue was 23.38 billion yuan, a year-on-year increase of 1.51%. Profit was 1.99 billion yuan, up 1.6%. However, facing Moutai, which has both product and financial attributes and no internal troubles, Tsingtao Beer changed too late. At this time, Moutai's stock price was soaring, from 400 yuan, 500 yuan, 600 yuan to 700 yuan, rising continuously without pause. Finally, driven by Wuliangye's price increase, Moutai announced a price hike from 819 yuan to 969 yuan. Its series wines increased correspondingly, with an overall price increase of 18%. Moutai's stock price also broke through 700 yuan after the announcement. According to announcements, Moutai's wine sales are expected to grow by about 34% year-on-year in 2017; total operating revenue is expected to exceed 60 billion yuan, a year-on-year increase of about 50%. Profit is 30 billion yuan, a year-on-year increase of 50%. This is the 2017 of Moutai and Tsingtao Beer. In ten years, one went east, the other west, and then they went their separate ways. Source: WeChat public account GPLP