Kweichow Moutai shares plunge as drinkers turn their backs on world’s most valuable liquor distillery
- Third-quarter profit growth for Kweichow Moutai slowed to 2.7 per cent, the worst performance in nine quarters
- Moutai has lost 314.2 billion yuan in value since June, more than the 2017 economy of its home city Zunyi
China’s economy grew at the slowest quarterly pace in a decade in the three months ended September, a slow-down that is crimping consumption, especially in high-end products like Moutai’s flagship baijiu liquor, where a half-litre bottle with 53 per cent alcohol content retails at 1,499 yuan (US$215).
Third-quarter profit for the distiller, based in Zunyi in southeastern China’s Guizhou province, rose 2.7 per cent to 9.65 billion yuan (US$1.39 billion), while sales growth slowed to 3 per cent.
“Moutai would need to achieve close to 70 per cent growth in the fourth quarter to reach its second-half target,” Bloomberg’s analysts Li Shen and Pang Kaitung wrote. “With weakening consumer sentiment associated with a slowing property market and the trade war, the result may signal the start of slowing growth for the liquor giant.”
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The single-digit earnings growth was the worst quarter in nine for Moutai, whose claim to fame arose from its status as the liquor used during China’s state banquets. Zhou Enlai famously toasted Richard Nixon during the US president’s 1972 China visit, which paved the way for the normalisation of diplomatic relations between the two countries.
Riding on its cache, Moutai’s sales had risen by at least 30 per cent every quarter since the beginning of 2017, when liquor sales recovered from Xi’s campaign to crack down on corruption and ostentatious consumption.
Moutai’s shares are now down 31 per cent from their 799.19 yuan record on June 12, losing 314.2 billion yuan in market value. That loss in capitalisation is more than Zunyi’s 2017 gross domestic product, and almost equal to the combined market value of Heineken and Carlsberg.
“On the backdrop of the weak consumer market and the cautious willingness among consumers to spend, demand for upscale liquors represented by Moutai are slowing down,” said Huatai Securities’ analyst He Qi, who cut the forecast of Moutai’s 2018 earnings by 10 per cent, and the outlook next year by 23 per cent.
Moutai’s woes have complicated the efforts by China’s policymakers in propping up the stock market, given the distillery’s weighting on the Shanghai Composite Index. Declines in its stock price has also spilled over to other baijiu producers on Monday like Yibin Wuliangye, which also fell by 10 per cent, and Luzhou Laojiao, which dropped 7.2 per cent.
