Despite industry insiders noting that the 2023 Chinese New Year came earlier, shortening the peak sales season by nearly half a month compared to 2022, the baijiu market entered its traditional off-season in February, which had a significant impact on sales. In this context, it is commendable that Shede Spirits maintained stable market expansion, especially achieving growth in both revenue and net profit from a high base in the first quarter of last year. However, data from major listed liquor companies in Q1 2023 shows that larger players did not significantly slow down: In Q1 2023, Kweichow Moutai's revenue was approximately 39.16 billion yuan, up about 18% year-on-year; net profit attributable to shareholders was about 20.52 billion yuan, up about 19%. Wuliangye's revenue was approximately 31.139 billion yuan, up 13.03% year-on-year; net profit attributable to shareholders was about 12.542 billion yuan, up 15.89%... The top five liquor companies' revenue and net profit growth rates far exceeded Shede's. Shede's Q1 revenue growth was only half the average level of listed liquor companies (15.77%).

Notably, last month market rumors suggested that Shede's channel sales were weak, distributors faced increasing pressure, and payment collection slowed, potentially affecting future performance. This led to Shede's stock hitting the daily limit down, and in subsequent trading days, the stock continued to decline. A staff member from Shede's securities department responded, "We have not received any relevant notices or information, and the company's production and operations are normal," but investors did not accept this response. Subsequently, Shede announced that Vice President Wei Wei resigned for personal reasons, which was sudden because at the recent 2023 distributor conference, Wei Wei had prominently introduced the company's new strategic product "Shede 10 Years" in the thousand-yuan price segment. Wei Wei's resignation may be related to Shede's recent underperformance.

Behind the 'stall': Liquor isn't selling. Based on data since 2022, Shede seems to be struggling to sell. According to financial reports, Shede's inventory value at the end of Q1 to Q4 2022 was 2.901 billion yuan, 3.136 billion yuan, 3.213 billion yuan, and 3.583 billion yuan respectively, with a year-on-year increase of 28.25% in 2022. By the end of Q1 2023, inventory continued to rise, reaching 3.851 billion yuan, up 32.79% year-on-year. Inventory growth far exceeded revenue and net profit growth.

It is worth mentioning that as of the end of Q1 this year, Shede's total assets were 10.981 billion yuan. Thus, inventory accounted for as much as 35.07% of assets. In other words, more than one-third of Shede's total assets are inventory. In response, Shede told investors: "The company's inventory mainly consists of semi-finished liquor. The production of high-end baijiu relies on the storage of aged liquor. Since 1976, the company has reserved a certain proportion of the highest-quality base liquor from each batch for strategic storage." If inventory alone cannot prove Shede is 'not selling,' then the significant reduction in contract liabilities might be more telling. Typically, baijiu companies adopt a 'payment before delivery' model, where distributor payments before shipment are recorded as contract liabilities, making them an important indicator of future operations. According to the 2022 financial report, Shede's contract liabilities were only 298 million yuan, down 54.8% from 658 million yuan at the end of the previous year. This indicates a sharp decline in buyers' enthusiasm to order and pay. It wasn't until Q1 this year that contract liabilities began to grow again, surging from 298 million yuan to 797 million yuan.

2022 Shede Balance Sheet (partial):

Will Fosun Group, currently embroiled in debt controversy, continue to support Shede in the future, or will it reduce holdings and 'abandon' it like it did with Jinhui Liquor?