Broker: China Galaxy International Securities (Hong Kong) Co., Limited
Date of Report: September 11, 2025

Anhui Gujing Distillery Faces Policy Headwinds: Financial Performance, Strategic Shifts, and Outlook for 2025

Executive Summary: Gujing Distillery Navigating a Challenging Baijiu Landscape

Anhui Gujing Distillery, a leading name in China’s baijiu industry, is under pressure as government policies continue to dampen business banquet consumption—a critical driver for premium spirits. With 2Q25 results falling short of expectations and signs of persistent headwinds into the second half of the year, investors are closely monitoring Gujing’s response, product strategy, and financial resilience. This article provides a comprehensive breakdown of Gujing’s latest results, strategic pivots, and the outlook for investors in 2025 and beyond.

Q2 2025 Performance: Revenue and Profit Under Pressure

Gujing reported a 14% year-on-year (YoY) decline in revenue and a 12% YoY drop in net profit for 2Q25—both below analyst expectations. This shortfall was mainly attributed to weak sales for mid- to high-end baijiu products, which were particularly affected by ongoing government restrictions on business entertainment and banquet alcohol consumption.

Additional key findings for 1H25:

• Overall revenue grew just 1% YoY
• Net profit was up 2% YoY in 1H25, indicating a sharp deceleration in Q2
• Baijiu accounts for 98% of total revenue
• Total baijiu sales volume grew 11% YoY in 1H25, beating the industry trend
• Average selling price (ASP) for baijiu dropped 8% YoY
• Gross profit margin (GPM) for baijiu fell by 1.4 percentage points, landing at 80.7%

Policy Impacts Continue to Weigh on Baijiu Consumption

A lack of policy relaxation regarding baijiu in business settings has led to ongoing weak demand, particularly for higher-end offerings. The industry as a whole is experiencing pressure, with the output of 65%-alcohol baijiu from major producers declining 5.8% YoY in 1H25. This has forced Gujing to recalibrate its focus towards mid-priced products and personal consumption channels.

Diversified Product Portfolio: Cellar Age Leads, but Premium Weakness Persists

Gujing’s Cellar Age brand accounted for 80% of baijiu sales in 1H25, with volume up 11% YoY but ASP down 8%. The growth was mainly driven by robust sales of the mid-priced Cellar Age 5/8 series, popular among personal consumers. However, sales for the higher-end Cellar Age 16/20 series likely declined YoY, contributing to a lower GPM for the Cellar Age segment (down 1.2 percentage points to 85.1%).
The Gujing and Huanghelong brands made up 9% and 11% of baijiu sales, respectively:

• Gujing brand: Sales down 4% YoY, volume up 9%, ASP down 12%, GPM down 4.2 percentage points to 52%
• Huanghelong brand: Sales up 7% YoY, volume up 12%, ASP down 5%, GPM down 1.5 percentage points to 70.6%

These trends indicate the use of end-consumer price promotions to sustain volume amidst a softer premium market.

Geographic Performance: Home Market Strength, Regional Weakness

Central China (mainly Anhui and Henan) remained resilient, with sales up 4% YoY in 1H25 and contributing 89% of total sales. The GPM in this region edged down only 0.2 percentage points to 80.2%. By contrast, sales in North and South China declined 27% and 6% YoY, respectively, with sharper margin erosion observed in North China.
Online sales were a bright spot, surging 40% YoY to Rmb573m in 1H25. Distributor numbers remained stable in Central China but fluctuated in other regions—indicating ongoing efforts to optimize the sales network.

Cost Control and Margin Analysis

Gujing responded to market headwinds by tightening marketing spend, with the distribution expense ratio dropping 1.9 percentage points to 22.8% in 2Q25. However, the administrative expense ratio increased by 0.9 percentage points to 6.2% due to topline declines. Notably, Gujing’s net profit margin improved by 0.8 percentage points to 28.1% in 2Q25, reflecting effective cost management.

Guidance and Forecast Revisions: 2025–2027 Outlook Softens

With no signs of imminent policy relaxation, Gujing’s management expects continued pressure in 2H25—especially in its core Anhui market. As a result, full-year FY25 sales and net profit are now forecast to decline 4% and 3% YoY, respectively. Forecasts for FY26 and FY27 have also been trimmed.

Valuation: Target Price Cut but ‘Add’ Rating Maintained

Given the revised forecasts, the discounted cash flow (DCF)-based target price is lowered from Rmb207 to Rmb192. The “Add” rating is retained, anchored by Gujing’s robust home market reputation, diversified product mix, and potential for sales recovery if government policies ease. The risk of intensified competition outside Anhui and higher marketing costs remains a key concern.

Financial Performance Snapshot

Balance Sheet Highlights and Key Ratios

• Total cash and equivalents projected at Rmb17.5bn in Dec-25F, rising to Rmb21.2bn by Dec-27F
• Net gearing remains negative, indicating robust net cash position
• ROE expected to remain above 20% through FY27F
• Inventory days projected to rise to 397.8 in Dec-25F, reflecting stock buildup amid softer demand

Valuation and Investment Perspective

• Current share price: Rmb174.4
• Target price: Rmb192.0
• Market cap: Rmb83,587m (US\$11,734m)
• Consensus ratings: 26 Buy, 2 Hold, 1 Sell
• Free float: 43.6%
• Average daily turnover: Rmb567.0m

Conclusion: Monitoring Policy, Margin Discipline, and Regional Execution

Anhui Gujing Distillery’s 2025 performance underscores the vulnerability of China’s baijiu industry to regulatory shifts in consumption patterns. While the company’s product diversification and cost controls are helping to mitigate the impact, further growth hinges on eventual policy easing and continued innovation in channel strategies. Investors should watch for signs of recovery in high-end consumption, margin trends, and Gujing’s ability to defend share in its home market while navigating competitive pressures across regions.

About the Analysts

Sun Feifei, Lei Yang, and Aaron He Wei are the lead analysts for this report.

Disclosure and Risk Factors

• Key risks include prolonged policy restrictions, intensifying competition, and higher marketing costs outside Anhui.
• Potential re-rating catalysts include earlier-than-expected policy relaxation and a faster recovery in sales, particularly in premium segments.