Kweichow Moutai is the most famous Chinese liquor brand, considered the national liquor in China.
Zhang Peng | LightRocket | Getty Images
BEIJING: The largest stock exchange in mainland China’s “A share” market is a liquor company that analysts are betting on long-term, despite falling in the last month.
Kweichow Moutai sells “baijiu” which has an alcohol content of between 43% and 53% and can cost a few hundred US dollars per bottle. Baijiu – literally “white spirits” – is a staple in Chinese business and government dinners for forging relationships and business.
Shares fell about 1% year-over-year until Monday morning, keeping 2020 gains at about 70%.
Earlier this year, the rapid rise in stocks sparked memes on the Internet comparing them to the GDP of Chinese cities and the high price of Bitcoin. Cryptocurrency bitcoin has risen more than 80% this year to over $ 60,000.
Moutai’s share price had risen 30% from December 31 to a record high just before the Lunar New Year in mid-February, when it reached a market value of $ 500 billion. This has been shaved by more than $ 100 billion in the following weeks, as shares fell more than 20% amid a broad sell-off of Chinese shares.
But Kweichow Moutai still has a higher valuation than any other continental A-share, including banking giant ICBC, according to Wind Information.
Moutai is the strongest brand in the high-end baijiu market and will increase its share even as China’s alcohol culture declines, said Luo Hao, a global capital investment analyst at China Asset Management.
He pointed to the company’s steady growth and returns for investors as reasons why it favors stocks.
Moutai expects to earn about 97.7 billion yuan ($ 15.1 billion) in operating income last year, with 10% growth amid the coronavirus pandemic. According to Bernstein analysts, the company will release the final results for 2020 later this month.
Growing foreign property
Wind data showed that, as of March 11, liquor shares had the largest number of non-continental institutions investing among A shares, with 101 companies holding 7.7% of the share. total market. That’s just a handful of companies earlier this year, according to the database.
Moutai and another baijiu maker, Wuliangye, are the top two members of MSCI’s China A index, which is followed by many foreign funds wanting to invest in China.
“We have a long-term positive view of China Ultra Premium Baijiu. We hope that the growth of the industry’s top value will be driven by rising revenue, which will continue to boost trade,” Bernstein analyst said in a note this month.
Although they prefer Wuliangye to Moutai over government and supply chain issues, Bernstein analysts still have a “buy” rating in Moutai and a target price of 2,500 yuan per share. That is up more than 20% from Moutai’s Friday closing price of 2,026 yuan per share.
– CNBC’s Michael Bloom contributed to this report.