Net profit up 58% yoy in 2017; in line with market expectation    Kweichow Moutai issued a profit alert on 31Jan 2018and announced that itsnet profit increased 58% yoy to Rmb26.4bn in 2017. On quarterly basis, the 4Q17profit grew 51% yoy to Rmb6.4bn. The net profit growth was driven by: 1) "FeitianMoutai" sales volume, increased 34% yoy to 31,000tons; 2) 10% ASP increaseof Moutai liquor due to increasing sales portion of super premium products; and3) Lower SG&A/sales ratio due to improved operating efficiency and operatingleverage.    The result was in line with its operation update announcement in Dec 2017ofa 58% yoy increase in profit before tax. It is also in line with our forecast atRmb26.2bn in 2017and market's consensus (Wind) at Rmb25.4bn.    Long-term growth potential remains intact    We think the strong net profit growth is not a surprise to the market. We maintainBuy on the stock for its strong branding and increasing channel control; yet inthe near-term, the potential over supply risk might assert pressure on its retailprice and market sentiments. We maintain our target price at Rmb790based onDCF model (factoring in 9.5% WACC and a 2% terminal growth rate). Downsiderisks: shorter-than-expected restocking cycle; government policy changes; foodsafety incidents.

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