Kweichow Moutai, the world’s most valuable liquor maker and Mao Zedong’s favourite tipple, has another milestone in its sights
- Kweichow Moutai may soon become the first Chinese listed companies with a share price above 1,000 yuan
- Analysts predicts the stock will rise further once the gateway is hit
Kweichow Moutai has another milestone in its sights.
After unseating Diageo as the world’s most valuable alcohol maker and seeing its market cap top 1 trillion yuan (US$148.5 billion), the Chinese fiery liquor juggernaut’s share price is nearing 1,000 yuan (US$148.56). A further 5.8 per cent gain would make Kweichow Moutai the first of the 3,000-plus mainland-traded companies ever to do so.
And the run-up is unlikely to end there. Analysts’ calls suggest the distiller’s stock will continue to ascend well beyond the 1,000-yuan mark. At least five investment banks including Goldman Sachs and Guotai Junan Securities have set price targets above 1,000 yuan.
CSC Financial, a Beijing-based brokerage, is the most bullish, predicting Kweichow Moutai’s shares will rise to 1,150 yuan. Investors including Hengsheng Asset Management agree.
I can’t see any growth cap on the company in the long run, unless the Chinese don’t drink one day
“Moutai remains a very good buy-and-hold investment,” said Dai Ming, a fund manager at Hengshen Asset in Shanghai. “I can’t see any growth cap on the company in the long run, unless the Chinese don’t drink one day. The liquor culture is deep-rooted in China and when you do business here, you drink. It’s a product with demand outstripping supply, so growth is quite visible.”
Kweichow Moutai fell 0.8 per cent to 945 yuan on Friday, trading close to a record high of 974.95 yuan set on Tuesday. It is way ahead of biopharmaceutical firm Changchun High & New Technology Industry, which trades at 303.20 yuan, making it the second most expensive stock on the mainland’s exchanges.
The distiller, which is based in Zunyi, Guizhou province, is almost twice the size of London-listed Diageo, with a market capitalisation of 1.2 trillion yuan.
Anyone who invested in Kweichow Moutai’s shares since its listing would have beaten the benchmark gauge by a healthy margin. The compound annual return on the stock is 33 per cent since 2001, compared with 2.9 per cent on the Shanghai Composite Index, according to Bloomberg data.
First-quarter net income for Kweichow Moutai increased by a faster-than-expected 32 per cent from a year ago, the 13th consecutive profit growth for that period.
Still, selling pressure on Kweichow Moutai may be building up in the short term, as the gain on share prices was a bit too fast this year and the valuation was tipping towards a level that may spur a sell-off among foreign investors.
“If you don’t own Kweichow Moutai shares, there’s no need to buy into it now,” said Allen Cheng, an analyst with Shenzhen-based Morningstar. “The stock price looks expensive now, although it’s a good company to invest in the long run.”
Cheng’s year-end target of 850 yuan was the lowest among the analysts who have issued share-price estimates in the past two months.He expects the distiller’s profit growth to slow in the second quarter because of a decrease in advance payments from customers, an underlying gauge of revenues.
Kweichow Moutai recently traded at 28.1 times projected earnings for this year, close to the 30 times that is seen as a selling signal. Overseas traders sold the stock more than they bought it every day this week as of Thursday via the exchange link, with combined net sales totalling 808.8 million yuan, according to data from the Hong Kong exchange.
“Each time the price-to-earnings ratio reaches 30 times, foreign investors sell Kweichow Moutai’s shares to lock in some profits,” said Hengsheng Asset’s Dai. “But they will load up on the stock when the multiple falls close to 20 times. It’s still one of the favourites among foreign investors.”
Its flagship product Feitian Mao-tai, with a heady 53 per cent alcohol content and which late Chinese leaders Mao Zedong and Zhou Enlai used to toast their guests at state banquets, sells for around 2,300 yuan a bottle on the nation’s major e-commerce platforms, more than double the prices of the products major rivals Wuliangye Yibin and Luzhou Laojiao.
Even so, Moutai’s products are still much sought after in first-tier cities, according to sales channel checks recently conducted by Shenwan Hongyuan Group. There was almost no inventory of the spirits in the shops visited by the Shanghai-based brokerage in Shanghai and Beijing.
CSC Financial, which has the most bullish call on Kweichow Moutai’s stock outlook, expects the tipple producer to achieve a compound annual growth rate of 15 per cent in coming years on prospects of strained supply and price increases.
“Moutai has a strong foothold in the market of liquor products above 1,000 yuan and its strong branding and profitable distribution channels have built up a solid moat,” said Lu Chang, an analyst at Shenwan Hongyuan in Shanghai. “It’s the industry’s leading player with the most secure outlook.”
