Luzhou Laojiao - A: 3Q26 review: Declines narrow, but recovery remains unproven

Laojiao's 3Q26 results missed consensus by 30%, although the pace of decline moderated. Gross revenue fell 37% YoY, versus 66% in 2Q, while net profit fell 57%, versus 80% in 2Q. We cut our earnings forecasts by 20%, leaving them 15% below consensus. Assuming sequential improvement continues, we forecast 4Q revenue to decline 20% YoY and net margin to improve, implying FY26E revenue and net profit of RMB16.8bn and RMB5.8bn, respectively. We expect revenue and profit to recover in 2027, but acknowledge that forecast risk remains high, given limited visibility on end-demand and channel inventory. Laojiao's fixed RMB8.5bn FY26 cash dividend implies a yield of approximately 7% and should help cushion the shares through the earnings reset. We maintain our Neutral rating with a revised price target of RMB72. We raise our target multiple to 16x FY27E P/E from 15x, as the fundamental decline narrows. This compares with our target multiples of 15x for Wuliangye and 20x for Moutai. Revenue decli