The recent quarterly reports of public funds have been released. While some top fund managers reduced their holdings due to redemption pressures, baijiu remains a core holding for many public fund products. Notably, a few well-known fund managers even increased their positions in Wuliangye Yibin Co.,Ltd. against the market trend in the first quarter. This indicates that, in the eyes of institutions, Wuliangye was still considered a "hard currency" worthy of long-term holding.
Furthermore, numerous index funds include Wuliangye in their portfolios, as the company is treated as a "good company" in index construction. However, on April 30, Wuliangye delivered a shocking lesson to its believers, especially the public funds investing real money, with what can only be described as a dramatic "magic trick" in its financial report. The earnings release represented a stunning about-face.
Wuliangye Yibin Co.,Ltd.'s 2025 performance suddenly plunged, with revenue and profit halved, attributed to "correction of accounting errors." This artificially lowered the base for the first quarter of 2026, making its Q1 profit appear to surge by 82% year-over-year, creating an illusion of an "explosive" rebound. However, astute observers recognize this as a classic "big bath accounting" tactic.
First, most investors, including fund managers, rely on financial reports to assess company quality. Such a sudden reversal raises the question of accountability. Previously, investors trusted the data and trends in financial statements. Now, hundreds of billions in revenue can be wiped out with a simple claim of an "error." This is not merely a numbers game; it tramples on the contractual spirit of the capital markets. If such a massive retrospective adjustment is dismissed lightly as an "accounting error," who will trust financial reports in the future? Public fund holdings cannot withstand the impact of this "trust bomb." When fund managers invest clients' money based on "value investment" logic, only to find that financials can be arbitrarily altered, it constitutes not just an investment mistake but a mockery of professional judgment. Who is responsible for this unannounced reversal?
Second, if this incident is glossed over, it sets a dangerous precedent, akin to the infamous judicial reasoning, "If you didn't hit him, why did you help him up?" While Wuliangye's financial maneuvering may seem confined to its shareholder base, the real danger lies in its demonstration effect. If this passes without consequence, other companies may believe they can reset poor performance or shed burdens through similar "big baths." Could this embolden other firms to more brazenly manipulate their accounts? If Wuliangye dares to adjust 300 billion today, might another company adjust 500 billion tomorrow? This disregard for rules is more alarming than the performance decline itself.
Third, stringent regulation must start at the source—listed companies. This situation tests the wisdom of regulators. Some argue Wuliangye is "clearing burdens" for a brighter future. But one must ask: how can we be sure this is its last deception? Trust is like paper; once crumpled, it never fully smooths out again. While Wuliangye claims the adjustment ensures "objective fairness," investors remain skeptical. If management can overstate results in good times and "correct" them in bad times, "value investing" devolves into gambling. Investors cannot be sure if current low valuations are genuine, not knowing if tomorrow will bring another "correction" for yesterday's profits. This incident challenges regulators to act decisively. If they turn a blind eye to such "financial engineering" or issue only perfunctory inquiries, it amounts to tolerance. Where is the red line for information disclosure? If even a "white-chip stock" like Wuliangye can abruptly change its face, the foundation of value investing in the A-share market will be shaken. How this situation resolves remains to be seen; let's allow some time for the truth to emerge.
Fourth, with 1.2 trillion yuan reportedly on its books, including 500 billion in liquid funds, mere verbal assurances of a "bright future" are insufficient to rebuild shattered trust. Some investors suggest a tangible gesture of sincerity: instead of explaining accounting errors, why not use a portion of that 500 billion for a full share buyback and cancellation? This should be a genuine cancellation, not a repurchase for employee incentives. The buyback could be conducted at a floor price based on the April 30 closing price, pushing up to the 4.9% legal limit. If the company admits past accounting mistakes and claims its stock is undervalued, this would be the most robust way to prove it. Spending real money to benefit shareholders speaks louder than a hundred announcements.
Wuliangye's actions not only test its own credibility but also pose a significant test for market regulators. If such "financial magic" is tolerated, the cornerstone of the A-share market will be undermined. Demonstrating "surgery-like" sincerity, even through self-penalizing measures, would be far better than the current ambiguous stance. Ultimately, while profits influence stock prices temporarily, trust determines valuation permanently.
Incidentally, the fact that professional investors like public fund managers were also treated like inexperienced traders begs the question: shouldn't they take some form of action as well?
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