Kweichow Moutai

Are Moutai advance orders a signal that China’s austerity drive is on the wane?

PUBLISHED : Wednesday, 16 October, 2013, 3:21pm
UPDATED : Wednesday, 16 October, 2013, 5:37pm

Orders for Kweichow Moutai, the liquor of choice at Chinese government banquets, have started to rise again after being previously almost wiped out by an austerity drive instituted by President Xi Jinping.

The Shanghai-listed producer Kweichow Moutai Co. says it had received advance payments of 1.9 billion yuan (HK$2.4 billion) by the end of September, up 132.6 per cent from three months earlier, according to a stock exchange filing on Tuesday.

While these advance payments are still 62 per cent lower than at the beginning of the year, their rise from the company’s reported half-year earnings indicates a pick-up in advance orders.

In a much publicised speech in December, Xi outlined austerity guidelines for government and Communist Party officials, banning lavish banquets at which Moutai is often served as well as extravagant flower arrangements and unnecessary travel.

As government departments shied away from buying the expensive liquor, the price of a bottle dropped by a third from 2,250 yuan to 1,500 yuan within three months. Prices have since dropped to 1,300 yuan, according to business weekly Investor China.

The company’s share price has fallen 30.1 per cent from the beginning of the year. It is still heading for the weakest annual growth since listing in 2001. 

But the Renhuai, Guizhou-based company’s third-quarter earnings showed its recovery is gathering pace.

In the third quarter, operating revenue rose 17.9 per cent to 7.9 billion yuan compared to same period last year. Net profit attributable to shareholders rose 11.6 per cent to 3.8 billion yuan.

As the market closed on Wednesday, the company’s share price stood at 144.24 yuan, up 7.6 per cent from its lowest level in three years two weeks ago.