To The Moon

Shanxi Fenjiu (600809.SH) has unveiled its 2026 interim report, revealing revenue of 21.044 billion yuan, a 12.18% year-on-year decline, and net profit attributable to shareholders of 6.439 billion yuan, down 24.29%. Notably, second-quarter net profit tumbled 43.11%. As the industry endures a period of profound adjustment marked by a 'triple contraction', Wuliangye Yibin Co.,Ltd. (000858.SZ) has reclaimed the second-place industry ranking with 28.417 billion yuan in revenue, surpassing Fenjiu.

The immediate cause of this underperformance lies in cost control breakdown. While second-quarter gross margin improved by 4.38 percentage points to 76.26%, the sales expense ratio surged to 21.2%, an increase of nearly 10 percentage points year-on-year. Combined with a higher tax rate, this drove the net margin down from 25.1% to 17.4%.

On the product front, while Qinghua 25 saw explosive growth of 360%, it fails to offset the structural imbalance of pressure on Qinghua 30 and a significant decline in Laobaifen. Fenjiu's dealer network contracted by 34 net additions in the second quarter. Furthermore, the 'Fenjiu 2030' and 'Fenqing 20,000-Ton' projects have seen investment levels of only 31.72% and 19% respectively, indicating that the peak of construction expenditure is yet to arrive. This, coupled with 8 billion yuan in pending dividend payments, creates unprecedented dual pressure on cash flow.

Additionally, on July 28, both the Board Secretary and Chief Accountant roles underwent simultaneous transitions. The newly externally appointed Board Secretary possesses limited experience within Fenjiu's system. It remains to be seen whether the financial line can transition smoothly and how the new team will manage cost deployment and capacity decisions.

Fenjiu's Q2 Net Profit Plummets 43%, Sales Expenses Surge Nearly 10% Eroding Profit

On the evening of August 30, as Fenjiu released its interim results, all 20 A-share listed liquor companies completed their 2026 'mid-term exams'. The collective revenue of these 20 companies in the first half reached 200.44 billion yuan, a year-on-year decrease of approximately 14.3 billion yuan, with aggregate net profit of 73.681 billion yuan, down about 8.28%. The industry finds itself in a deep adjustment phase characterized by 'triple contraction' in volume, revenue, and profit.

According to Fenjiu's interim report, it achieved revenue of 21.044 billion yuan in H1 2026, down 12.18% year-on-year, and net profit of 6.439 billion yuan, a 24.29% decline. This performance is not surprising within the context of a general industry decline. Among the 20 companies, only Kweichow Moutai (600519.SH), Wuliangye Yibin Co.,Ltd. (000858.SZ), Yingjia Gongjiu (603198.SH), Jinhui Liquor (603919.SH), and Jinba Li Du (06979.HK) achieved revenue growth. Only three companies – Wuliangye, Yingjia Gongjiu, and Jinba Li Du – achieved growth in both revenue and net profit.

It is noteworthy that Wuliangye, with 28.417 billion yuan in revenue, has overtaken Fenjiu to reclaim the second position in the industry. However, the real story lies not in these surface figures, but in the structural shifts hidden beneath them. Financial data shows that in Q1 2026, Fenjiu's revenue was 14.923 billion yuan, down 9.68% year-on-year. In Q2, revenue fell to 6.121 billion yuan, with the decline widening to 17.74%, and net profit of 1.057 billion yuan, a sharp 43.11% drop year-on-year.

Interestingly, there is an anomaly: Fenjiu's Q2 2026 gross margin rose 4.38 percentage points to 76.26%. Despite improving gross margin, the net margin fell from 25.1% to 17.4% year-on-year. The issue lies in costs. Sales expenses in Q2 2026 soared to 21.2% of revenue, a 9.7 percentage point increase year-on-year. First-half sales expenses reached 2.62 billion yuan, up 9.97% year-on-year, with advertising and promotional spending increasing by nearly 20%. In the context of declining revenue, the rigid growth in expenses significantly amplified the erosion of profits. Additionally, Fenjiu's tax rate in Q2 2026 increased by 1.7 percentage points year-on-year. The improvement in gross margin, squeezed by both expenses and taxes, inevitably put pressure on net margin.

Can Qinghua 25's 360% Surge Compensate?

By product category, Fenjiu series revenue reached 20.62 billion yuan in H1 2026, down 11.84% year-on-year, while other liquor revenue was just 314 million yuan, a sharp 35.08% decline. Notably, the performance across Fenjiu's product lines varies significantly. Qinghua 20 and Bofen, the two 'billion-yuan single products', remain the foundation for stable revenue. Sales of 42-degree Qinghua 25 grew by over 20%, and 53-degree Qinghua 25 surged by around 360%. Qinghua 30 continues to face pressure due to weak commercial demand. Mid-tier Panama series saw a slight decline, while Laobaifen experienced a substantial drop.

Fenjiu's product matrix spans low, mid, and high price points, forming a tiered layout from Bofen to Qinghua 30. However, in the current consumption environment, demand for sub-premium and above is clearly compressed, while mid-to-low-end products face proactive adjustments, making lower overall revenue an inevitable outcome. Meanwhile, as of the end of June 2026, Fenjiu had 550 dealers in Shanxi province, a net decrease of 10 during the period, and 2,937 dealers outside the province, a net increase of 11. The total number of provincial dealers decreased by 81. By the end of Q2 2026, in-province dealers had decreased by 13 net from the end of Q1, and out-of-province by 21 net.

On another front, Fenjiu proactively relaxed payment collection requirements in Q2, avoiding pushing inventory onto its channel. Inventory levels in many regions have dropped to a healthy 2-3 month range. From a regional revenue perspective, Fenjiu's out-of-province revenue was 12.997 billion yuan, down 14.17% year-on-year, accounting for over 60% of total. Its main consumer markets are in the Yangtze River Delta, Pearl River Delta, and other regions. Direct sales and e-commerce channel revenue was 1.386 billion yuan, a 2.20% year-on-year increase – the only channel type showing growth. Its 'Guanfen' micro-bistro has launched in multiple cities including Taiyuan, Shanghai, and Jinan.

Notably, Fenjiu's other payables surged from 1.245 billion yuan to 9.812 billion yuan in H1 2026, an increase of 688%. Of this, 8.009 billion yuan is attributable to dividends payable. According to Fenjiu's 2025 cash dividend plan ('10 shares for 65.6 yuan'), this money has yet to be paid. Additionally, Fenjiu's contract liabilities stood at 6.658 billion yuan in H1 2026, up approximately 11.3% year-on-year, but down 1.246 billion yuan from the end of Q1.

6.2 Billion Yuan in Internal Inventory Pressure, Two Core Executives Simultaneously Replaced

According to Fenjiu's H1 2026 report, 2.887 billion yuan has been invested in the 'Fenjiu 2030' project, representing only 31.72% of cumulative investment, while the 'Fenqing 20,000-Ton' project has seen 281 million yuan invested, just 19% of its total. These are merely the beginnings of two super-large investment projects. In H1 2026, Fenjiu's cash flow from investing activities was -6.5 billion yuan, mainly due to purchases of wealth management products and time deposits, but actual cash expenditure on construction in progress was only 286 million yuan. The true peak of capacity construction spending has not yet arrived. If 8 billion yuan in dividends is paid next year, coupled with concentrated project payments, Fenjiu will face unprecedented dual cash flow tests.

Furthermore, the company's deferred tax assets amount to 2.878 billion yuan. The portion corresponding to 'unrealized profit from internal transactions' has increased from 5.633 billion yuan at the beginning of the year to 6.265 billion yuan. In other words, goods worth 6.265 billion yuan sold by the parent company (production side) to subsidiaries (sales side) have yet to be finally sold to consumers, resting instead in subsidiary warehouses. From a consolidated reporting perspective, this internal inventory has not been digested; it has actually increased by over 600 million yuan compared to the beginning of the year. This indicates that the 'de-stocking' task across the entire chain remains arduous, and it's not just about terminal sell-through – internal inventory levels will require time to normalize.

At the senior management level, on July 28, 2026, Shanxi Fenjiu completed the simultaneous replacement of two core positions: Board Secretary and Chief Accountant. The former Board Secretary Xu Zhifeng and former Deputy General Manager and Chief Accountant Wang Huai have both left due to job transfers. They are succeeded by Chen Xi and Song Yapeng respectively. This marks another adjustment to Fenjiu's core management team following previous changes involving three directors. The new Chief Accountant, Song Yapeng, is a 32-year veteran within the Fenjiu system, having long led audit, discipline inspection, and internal control work. The new Board Secretary, Chen Xi, previously worked at large provincial state-owned enterprises like Shanxi Transportation Holdings Group before joining Fenjiu to lead the Board Office and serve as an external director for several subsidiaries. He was promoted to Board Secretary in July this year.

With both core positions changing hands simultaneously, and Chen Xi having relatively limited experience within the Fenjiu system, a short-term adjustment period is anticipated. With Wang Huai resigning from all operational management roles, whether the daily management of the financial line can transition smoothly remains to be seen. Whether the new team will make adjustments on key decisions such as cost deployment intensity and capacity construction pace are important points for ongoing monitoring.