With declining performance, negative cash flow, and 516 distributors exiting, can Guo Guangchang revive Shede Spirits?

On March 20, 2026, Sichuan Shuyuan Liquor Industry (600702.SH) released its 2025 annual performance report.

Data shows that in 2025, Sichuan Shuyuan Liquor Industry achieved operating revenue of RMB 4.42B, down 17.51% year over year. Net profit attributable to shareholders of listed companies was RMB 223 million, plunging 35.51% year over year. Net profit after deducting non-recurring gains and losses was cut even more sharply, with the decline reaching 50.31%. This marks the company’s second consecutive year of performance declines. Compared with the company’s peak period in 2023, net profit has fallen from a high of RMB 1.77B to RMB 223 million, representing a shrinkage of nearly 90%.

Against the backdrop of a deep adjustment in the baijiu industry, this listed company—once hailed as one of the “Six Golden Flowers of Sichuan Liquor”—is undergoing the most severe operating challenges since Fosun Group took control.

I. Financial Dilemmas Behind the Performance Slump

Judging by quarterly performance, Sichuan Shuyuan Liquor Industry’s results show clear volatility. In the first quarter, net profit attributable to shareholders was still RMB 346 million; in the second quarter, it fell to RMB 97 million; in the third quarter, it dropped further to only RMB 29 million; and in the fourth quarter, it even recorded a single-quarter loss of RMB 249 million. This worsening trend quarter by quarter reflects that the company’s operating condition accelerated in deterioration in the second half of 2025.

The divergence in product mix reveals deeper issues. In 2025, revenue from mid-to-high-end liquor reached RMB 3.12B, down sharply 23.83% year over year, while revenue from ordinary liquor was RMB 733 million, up 5.75% year over year. This comparison indicates that the company’s core high-end product line is facing severe pressure, while ordinary liquor with lower gross margins is still growing but cannot make up the profit gap caused by the high-end decline. Mid-to-high-end liquor’s gross margin was 74.67%, while ordinary liquor’s gross margin was only 37.92%. The downward shift in product mix directly dragged down overall profitability.

The deterioration in financial data is even more alarming. In 2025, net cash flow from operating activities for the company was -RMB 523 million. Although this improved compared with -RMB 708 million in 2024, it still represents a second consecutive year of net cash outflow. As an important indicator of healthy operations in the baijiu industry, consistently negative operating cash flow directly reflects weak receivables collection capability and the continued high level of inventories and channel occupy funds.

A Tonghuashun financial diagnostics model shows that over the past five years, Sichuan Shuyuan Liquor Industry’s overall financial condition has been below the industry average. Among 20 companies in the baijiu industry it belongs to, it ranks toward the back, with a total score of only 1.05.

More severe are three clear financial risks facing the company: the average accounts receivable turnover ratio is 16.94 times per year, indicating collection pressure is high. The quick ratio is 0.41, meaning the company’s short-term solvency is weak. The average net profit cash content is -35.67%, showing that the company’s cash flow is poor. Taken together, these indicators point to a fact: Sichuan Shuyuan Liquor Industry’s operating quality is worsening.

Inventory issues are also not to be ignored. As of the end of 2025, the company’s inventory balance was as high as RMB 5.9B, up 13.13% from the end of the previous year. Among this, self-produced semi-finished products (including base liquor) totaled 182.1 thousand kiloliters, and finished liquor inventories were 9,013.52 thousand kiloliters. Against the backdrop of declining sales revenue, continued inventory growth implies higher pressure on product movement and increased capital occupation.

Meanwhile, in 2025, the company’s capacity utilization rate was only 46%, down sharply from 64% in 2023. With capacity utilization below 50%, the company is still pushing an expansion project with total investment of about RMB 182.1k, planning to add roughly 60k tons of annual base spirit production. This severe mismatch between capacity and sales may expose new capacity to the risk of being “idle immediately after completion.”

II. Strategic Fluctuations and Governance Turmoil

The company’s predicament is not only reflected in financial data, but also in strategic execution and corporate governance. Since December 2020, when Fosun Group acquired 70% equity of Tuo Pai Shuyuan Group through Yuyuan Co., Ltd. for RMB 4.53 billion, this long-established liquor enterprise has experienced frequent management changes and strategic adjustments.

The stability of the executive team has become a key focus for the market. Over the past five years, the core executive team of Sichuan Shuyuan Liquor Industry has changed more than 20 times. Just the position of chairman has seen “three replacements” within two years: in December 2022, Zhang Shuping resigned; in January 2023, Ni Qiang, backed by Fosun, took over; later in December of the same year, Ni Qiang stepped down, and veteran executive Pu Jizhou was promoted to chairman. On March 3, 2026, the company’s vice president Wang Yong resigned for work-related reasons. This came only a year after the resignation of Zhuo Qingli, the former vice president and chief financial officer, in March 2025. Frequent personnel changes directly affect the coherence of the company’s strategy and the efficiency of execution.

The “aged liquor, multi-brand matrix, youngerization, internationalization” strategy that Fosun set for Sichuan Shuyuan Liquor Industry has faced severe challenges in real execution. The company tries to strike a balance between a high-end aged liquor strategy and expansion into the mass market, but in an era of competition with limited incremental demand, this strategy of “seeking high-end pricing premium while also pushing volume in the mass market” faces enormous resource allocation challenges.

Turbulence on the channel side further increases operating pressure. In 2025, Sichuan Shuyuan Liquor Industry’s traditional wholesale agency channels generated revenue of RMB 7.05B, down sharply 25.19% year over year. The change in the number of distributors is even more intuitive: the company added 378 new distributors over the year, while 516 exited, resulting in a net decrease of 138 distributors to 2,525. The continued loss of distributors reflects a shake in channel confidence. At the same time, contract liabilities (advance payments) decreased 11% year over year to RMB 147 million, also indicating that downstream distributors’ willingness to place funds for inventory is on the low side.

The failure of the equity incentive plan highlights the huge gap between management expectations and market reality. According to the equity incentive performance targets disclosed by Sichuan Shuyuan Liquor Industry in early 2025, in 2025 revenue needed to grow 20% year over year and net profit attributable to shareholders needed to grow 164% year over year. The corresponding targets were RMB 60k and RMB 913 million, respectively. However, actual completion rates were only 68.7% and 24.4%. The gap between operating expectations and market reality is significant. Such aggressive performance targets appear out of touch with reality during an industry downcycle.

III. Historical Burdens and Potential Risks

Sichuan Shuyuan Liquor Industry’s development history has been full of ups and downs. In 2020, due to non-operating funding occupation by its controlling shareholder Tianyang Holding and its related parties, the company was subject to other risk warnings, and its stock abbreviation was changed to “ST Shuyuan.” After investigation, since November 2018, Tianyang Holding had occupied the company’s funds through related parties without proper authorization. As of September 2020, the occupied funds not yet recovered totaled RMB 475 million (principal RMB 440 million, and interest on fund occupation RMB 35 million), accounting for 15.64% of the company’s audited net assets in 2019. This incident led to public censure by the Shanghai Stock Exchange of Zhang Shaoping, then a director of the company, and the public determination that he was not suitable to serve as a director, supervisor, or senior management of a listed company within three years.

Although the company successfully “removed the hat” in May 2021, the historical record of violations still cast a shadow over the company’s governance structure. The CSRC ultimately believed that the company and Tuo Pai Shuyuan Group’s involved acts violated relevant regulations, but, in accordance with law, no punishment would be imposed, and a case closure decision was made. This history serves as a reminder to investors that Sichuan Shuyuan Liquor Industry previously had serious defects in corporate governance.

Looking ahead, Sichuan Shuyuan Liquor Industry faces multiple risk challenges. First is the continuing downtrend risk of the industry cycle. Currently, the strength of domestic consumption recovery is relatively weak, and business entertaining scenarios continue to shrink. If the progress of channel inventory destocking falls short of expectations, it will further extend the industry adjustment cycle. The next-tier high-end price band of RMB 300–700 is precisely Sichuan Shuyuan Liquor Industry’s core battleground, and competition in this range is especially intense.

Second is the pressure on the capital chain. In 2025, the company’s net cash flow from investing activities was -RMB 932 million, up significantly 386.2% compared with -RMB 192 million in the same period of the previous year. At the same time, long-term borrowings rose from RMB 431 million to RMB 774 million, an increase of 79.38%; short-term borrowings rose from RMB 711 million to RMB 3.25B, an increase of 59.65%. The net cash flow from financing activities was RMB 6.43B, up 766.06% year over year, mainly driven by the increase in borrowings. This “borrowing new loans to pay off old debts” model is raising financial costs: in 2025, the company’s finance costs changed from -RMB 26.19 million in the same period of the previous year to RMB 10.83 million.

Third is uncertainty in strategy execution. Proceeding with a RMB 7 billion expansion project when capacity utilization is only 46%, and investing in liquor-and-travel integration projects in a context where cash flow remains negative—whether the rationality of these decisions is sound is worth questioning. By the end of 2025, construction progress for capacity increase and expansion projects was only 32%. With less than two years remaining until the target of fully completed by 2027, there is a very likely risk of schedule delays.

Finally, there is awkwardness in brand positioning. Sichuan Shuyuan Liquor Industry is trying to build “Shuyuan” into the number one brand in the aged liquor category, but in the actual market, the “aged liquor” concept faces challenges of unclear consumer recognition. In the high-end market, the company struggles to compete with Moutai and Wuliangye. In the next-tier high-end segment, it also faces pressure from consumption downgrade. Adjusting the product structure—tilting toward ordinary liquor with lower gross margins—may help stabilize revenue in the short term, but in the long run it will damage the company’s profitability.

In 2025, Sichuan Shuyuan Liquor Industry plans to distribute cash dividends of RMB 3.10 per 10 shares (including tax), totaling RMB 102 million, accounting for 45.67% of the net profit attributable to shareholders of the listed company for the period. This high-proportion dividend distribution measure has been interpreted as a signal that the company is conveying confidence to the market. However, given the backdrop of a steep decline in performance and negative cash flow, the sustainability of this dividend policy remains questionable.

Sichuan Shuyuan Liquor Industry is at a crossroads. The company has more than 120k tons of aged liquor reserves and two brand assets—“Tuo Pai” and “Shuyuan”—all of which are valuable resources. But in a context of deep industry adjustment and intensifying competition, how to balance short-term survival with long-term development, how to maintain strategic resolve amid frequent executive changes, and how to push capacity expansion under capital pressure are all challenges that management must face.

Fosun Group Chairman Guo Guangchang once said, “We need to turn Shuyuan into a world-class liquor brand.” Yet, in the reality that growth targets are repeatedly missed and pressure from inventory and capacity continues to accumulate, the path to realizing this lofty ambition remains full of uncertainty. For investors, it is necessary to closely track changes in core indicators such as end-market product movement, trends in distributor pricing, channel inventory, and the efficiency of expense deployment, and to assess rationally the opportunities and risks of the company’s strategic transformation.

Under the background of the baijiu industry shifting from incremental competition to stock-based rivalry, relying solely on brand stories and capital operations is not enough to support long-term growth. True competitiveness comes from comprehensive improvements in product strength, channel strength, and organizational strength. For this long-established liquor company, the performance slump in 2025 may be only the beginning; the real test is still ahead. (Produced by “Financial Weekly—Caishi Hui”)

Disclaimer: The opinions expressed in this article do not constitute any investment advice. Investors act at their own risk.

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