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Mao Zedong’s tipple and G-bits fight it out as China’s priciest stock

Kweichow Moutai, producer of the fiery liquor that was Chairman Mao’s preferred tipple, is the priciest among China’s 3,100 stocks, trading at almost 400 yuan per share

PUBLISHED : Thursday, 23 March, 2017, 12:05pm
UPDATED : Thursday, 23 March, 2017, 10:38pm

Chinese liquor giant Kweichow Moutai and gaming service provider G-bits Network Technology are in a race to be crowned the most expensive stocks on China’s equity markets.

After being briefly unseated by G-bits during intraday trading on March 14, Kweichow Moutai has regained its lead as the priciest stock on the Shanghai and Shenzhen stock exchanges.

The nation’s biggest traditional liquor, or baijiu, maker is now 12 per cent more expensive than G-bits, being the only two stocks trading above 300 yuan among China’s 3,100-plus publicly traded companies.

Investors’ enthusiasm for the two highlights China’s ambition to shift its economy, already the world’s second largest, to one that relies more on consumption and service industries as growth engines, rather than credit-fuelled investment.

Investors seem to favour Moutai due to the strong and growing demand for its products.

Alexandre Werno, executive vice general manager of Fortune SG Fund Management Co, says Moutai has solid fundamental support for its stock price, while the share-price gain for G-bits – which debuted on the Shanghai exchange on January 4 – is mostly the result of speculative buying of new listings, which are often subject to manipulation, due to their small proportions of free-floating shares.

Werno’s firm held shares in Kweichow Moutai at the end of last year, according to the latest corporate filing.

“Moutai will hold the title of the country’s most-expensive stock for the forseeable future,” he said. “Sales are quite stable these days. Demand is always higher than supply. Therefore Moutai has the power to increase its retail price. This has driven the stock price higher.”

The Chinese liquor distilled from sorghum is gaining favour among retail consumers, thanks to rising incomes, rather than public spending lavished by government officials, as before.

Official data from the statistics bureau showed annual disposable incomes increased by faster-than-GDP-growth, at 8.4 per cent last year.

Moutai, distiller of the fiery liquor that’s been the staple of China’s state banquets ever since former premier Zhou Enlai toasted Richard Nixon during the former US president’s 1972 visit, is priced roughly at 1,200 yuan (US$174) per bottle, about 30 per cent of monthly average disposal income for residents in first-tier cities like Beijing and Shanghai.

When Mao Zedong and Chiang Kai-shek celebrated the conclusion of their Chongqing peace talks in September 1945 ending the civil war between the Communists and the Kuomintang, they toasted each other with Mao’s preferred tipple -- the fiery maotai liquor.

Due to its premium price point, Moutai’s sales had been used as a proxy for China’s conspicuous consumption and a scapegoat in the Communist Party’s crackdown of wayward cadres.

Kweichow Moutai expects first-quarter profit to rise 16 per cent from a year earlier, accelerating from a 7.4 per cent increase for the whole year of 2016, according to exchange filings.

G-bits said profits are likely to jump by as much as 235 per cent last year, as a newly launched mobile game attracted users.

Moutai is now almost 20 times as big as G-bits by market capitalisation. On a valuation basis, the liquor maker trades at 24 times estimated earnings, compared with the multiple of 36 times for G-bits.

“Moutai will continue to outdo G-bits by stock price,” said Wang Chen, a partner with Xufunds Investment.

“From the demand side, Moutai has a lot of potential, too, with its products still much sought-after.

G-bits, on the other hand, faces a fair degree of uncertainty, such as if it can retain its current number of active users and face intensifying competition in the industry. The stock is also considered a bit expensive currently, on a valuation basis.”

Moutai did not reply to an e-mail from the South China Morning Post seeking comment.

Fortune SG Fund’s Werno even expects G-bits’ share price to fall significantly from its current level, when speculation on new listings eases, and as the company faces fiercer competition from Tencent and NetEase, the two other giant players in China’s gaming industry.

The stock has already jumped more than six fold from its initial public offering price.

China’s gaming industry has been slowing since 2013, with the annual growth rate down to 18 per cent last year from 38 per cent, according to Essence Securities.

Moutai has further cemented its No 1 position as the most expensive stock since March 14, after advancing 6.8 per cent, compared with a decline of 3.4 per cent for G-bits during the period.

Li Jingyuan, general manager of Shanghai Bingsheng Asset Management Co, even sees shares in Kweichow rising to 530 yuan in coming months, citing solid earnings and cheap valuations.

That price target would mean roughly a 34 per cent increase from its current price.

Moutai’s price has already risen 18 per cent this year, heading for a fourth consecutive annual gain after a 38 per cent plunge in 2013 amid President Xi Jinping’s anti-graft campaign.

The stock actually lost its title as the most expensive share to some small-cap stocks in 2015, when companies listed on the ChiNext index of start-ups were pushed up to bubble levels.

However, this proved short-lived.

One example was Qtone Education Group, an educational software maker trading on Shenzhen’s ChiNext board, which surged to a record 467.57 yuan in May 2015, before falling back to its current 20 yuan.

“With tight supply of liquor, demand is now better than was expected,” said Shi Xingtao, a fund manager at HSBC Jintrust Fund Management Co, which holds shares in Moutai.

“We are relatively positive on the sector.”

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