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

Anhui Gujing Distillery Faces Headwinds Amid Policy Pressures: A Deep-Dive into 2025 Performance and Outlook

Executive Summary: Navigating Policy Challenges in China’s Baijiu Industry

Anhui Gujing Distillery, a prominent player in China’s baijiu sector, encountered significant external challenges in the first half of 2025, with government policy constraints weighing heavily on mid- to high-end product sales. Despite maintaining a resilient market presence in its home province, the company’s latest results reveal declining revenues and net profits, prompting downward revisions to earnings forecasts and a lowered target price. This report provides a comprehensive analysis of Gujing’s financial performance, product mix evolution, regional trends, and strategic outlook for investors and industry watchers.

2Q25 Performance: Revenue and Profit Miss Expectations

Gujing’s results for the second quarter of 2025 were notably subdued:

• Revenue: RMB 4.7 billion, down 14% year-on-year
• Net Profit: RMB 1.3 billion, down 12% year-on-year
• Both figures missed consensus, mainly due to weak demand for mid- to high-end baijiu, especially after stricter government policies on alcohol consumption at business banquets from May 2025.

In the first half of 2025, Gujing’s total baijiu sales rose 2% year-on-year, with sales volume outperforming the industry at +11%. However, average selling price (ASP) dropped 8% and gross profit margin (GPM) declined by 1.4 percentage points to 80.7%, reflecting an unfavorable product mix and increased price promotions.

Detailed Financial Overview: Key Metrics and Trends

Product Mix: Cellar Age Leads but High-End Falters

– The flagship Cellar Age brand accounted for 80% of total baijiu sales in 1H25, registering 2% year-on-year growth in sales value and 11% in volume, but with an 8% drop in ASP. – Gujing’s mid-priced Cellar Age 5/8 lines performed steadily, catering to personal consumption, while mid-to-high-end Cellar Age 16/20 likely saw a decline. – Cellar Age’s GPM fell 1.2 percentage points to 85.1%. – The Gujing brand contributed 9% of baijiu sales (-4% YoY; volume +9%, ASP -12%), and Huanghelong made up 11% (+7% YoY; volume +12%, ASP -5%). – GPMs for Gujing and Huanghelong also declined, reflecting the impact of price promotions.

Regional Performance: Central China Remains a Pillar

– Central China (mainly Anhui and Henan) delivered resilient sales, up 4% year-on-year and contributing 89% of total revenue, with stable GPM. – Sales in North and South China dropped 27% and 6% respectively, highlighting the challenges outside the company’s core market. – Online sales were a bright spot, surging 40% year-on-year to RMB 573 million in 1H25. – Distributor numbers remained stable in Central China but fluctuated in other regions.

Expense and Margin Analysis: Cost Discipline Amid Weak Demand

– Distribution expense ratio fell by 1.9 percentage points to 22.8% in 2Q25, reflecting active cuts in marketing spend. – The administrative expense ratio rose to 6.2% due to topline decline. – Notably, Gujing’s net profit margin improved by 0.8 percentage points to 28.1% in 2Q25, aided by lower promotional expenses.

Full-Year and Future Outlook: Forecast Revisions and Valuation

– The outlook for 2H25 remains cautious, with sales and net profit projected to decline 11% and 12% year-on-year respectively, and full-year 2025 forecast declines of 4% in revenue and 3% in net profit. – Earnings per share (EPS) for FY25-27 have been cut by 12.5-19.9% amid lower topline growth expectations and subdued demand.

DCF Valuation and Target Price

– The report assigns a discounted cash flow (DCF)-based target price of RMB 192 per share (WACC: 12%, terminal growth rate: 3%), down from the previous RMB 207. – Current market price: RMB 174.4, implying a 10.1% upside. – The company remains rated “Add” due to its strong Anhui market position and robust Cellar Age brand, but the rating is tempered by persistent policy headwinds.

Balance Sheet and Liquidity Snapshot

Key Risks and Catalysts

• Risks: Prolonged government policy restrictions, increased competition outside Anhui, higher marketing costs, and further ASP erosion could pressure margins and growth.
• Catalysts: Earlier-than-expected relaxation of baijiu consumption policy could drive a sales rebound, especially for premium products.

Shareholding Structure and Trading Overview

• Anhui Gujing Group holds 53.9%
• Gaoling Fund L.P. holds 2.5%
• Current market cap: RMB 83.6 billion (US\$11.7 billion)
• Shares outstanding: 528.6 million
• Free float: 43.6%

Conclusion: Strategic Positioning Amid Uncertainty

Despite short-term headwinds, Anhui Gujing Distillery’s robust product portfolio and stronghold in Anhui province remain the backbone of its resilience. Cost discipline and digital channel expansion offer some offset to weak banquet demand. Investors should monitor policy signals and competitive dynamics closely, as any relaxation in government restrictions could serve as a powerful catalyst for recovery in 2H25 and beyond.

Recommendation Definition and Analyst Certification

– Stock rating: “Add” – total return expected to reach 15% or higher over the next 12 months. – The analyst certifies independence and objectivity in the report and holds no personal interest in the securities discussed.
This comprehensive analysis provides investors, analysts, and market followers with an in-depth perspective on Anhui Gujing Distillery’s 2025 trajectory, its strategic responses to regulatory challenges, and its prospects for the coming years.