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China stock market

China’s distillers say ganbei as banquets and parties resume

Distillers are the best-performing stocks this year as rising wealth among Chinese consumers reversed the sales slump triggered by President Xi Jinping’s 2013 frugality campaign

PUBLISHED : Friday, 28 April, 2017, 2:33pm
UPDATED : Friday, 28 April, 2017, 10:47pm

The recent rally in local Chinese liquor producers is likely to continue, with industry earnings for the country’s very own distilled clear spirit, baijiu, expected to well outpace demand for other types of hard alcoholic drinks.

Major Chinese liquor makers, including market leaders Kweichow Moutai and Wuliangye Yibin, are all expected to post average profit increases of 26 per cent this year, according to projections by Shenwan Hongyuan Group. That’s almost twice as fast as the consensus estimate of 14 per cent growth for all Chinese mainland-listed companies.

The group of stocks is the best-performing industry group this year as rising wealth among Chinese consumers has reversed a slump in sales in the industry, triggered by President Xi Jinping’s frugality campaign in 2013.

Distributors have raised their retail prices of Moutai and Wuliangye this year amid rising demand for the high-end Chinese liquor, which is distilled from traditional grains such as sorghum and rice.

“The industry’s prosperity is expected to carry on,” said Hu Chunxia and Ou Shaoping, analysts at Guotai Junan Securities.

“Lots of funds are still looking for opportunities to add more to their holdings.”

Liquor makers have also become popular, particularly, with Chinese mutual-fund managers this year.

Data compiled by Citic Securities showed money managers bought more of the stock than any other sector in the first quarter, as they sought investment safe havens amid the escalating crackdown on financial products.

And fund managers probably have more room to raise their holdings of liquor stocks, according to historical data.

The sector made up 2.14 per cent of Chinese mutual funds’ equity allocation at the end of the first quarter, way behind their peak of 6.7 per cent in 2012, according to Essence Securities.

Shares in Moutai – the 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 – has grown 26 in value per cent this year, while Wuliangye has risen 33 per cent and Luzhou Laojiao by 42 per cent.

The liquor industry suffered plunging sales in 2013 as Xi started his anti-graft drive, curtailing public expenses for gifts and banquets.

The industry’s prosperity is expected to carry on. Lots of funds are still looking for opportunities to add more to their holdings
Hu Chunxia and Ou Shaoping, analysts at Guotai Junan Securities

But rising affluence of Chinese consumers has come to the industry’s rescue, with main purchases now coming from individuals.

Disposable incomes increased by 8.5 per cent from a year ago in the first quarter, outpacing economic growth, according to China’s National Bureau of Statistics.

Market consensus is that Moutai’s 2017 earnings will probably increase 24 per cent this year, according to Shenwan Hongyuan. The projections for Wuliangye and Luzhou Laojiao are 19 per cent and 34 per cent, respectively, according to the brokerage.

Both Moutai and Luzhou Laojiao are valued at 24 times projected earnings, and Wuliangye at 22 times, compared with the multiple of 13 times for the Shanghai Composite Index, according to Shenwan Hongyuan.

“The liquor industry is still healthy on the whole and current valuations are reasonable,” said analyst Fan Jinsong at Zhongtai Securities.


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