Kweichow Moutai’s stock price upgrade could propel the valuation of China’s top liquor distiller to US$507 billion
- Kweichow Moutai and Wuliangye Yibin rose to records for two straight days, leading the broader market gains since the start of the new year
- CICC’s price target implies a further 30 per cent gain for Kweichow Moutai’s shares
Kweichow Moutai, the world’s 16th-most valuable company, may have another 30 per cent to go, which would bolster its market capitalisation to a staggering US$507 billion, if a forecast by China’s largest home-grown investment bank is to be believed.
With liquor distillers Kweichow Moutai and Wuliangye Yibin rising to record highs for two days in a row and leading the broader-market gains since the start of the new year, China International Capital Corp (CICC) has raised the share-price estimates for top tipple makers. Their strong momentum had lifted a gauge of consumer-staple stocks by 75 per cent last year, making them the best-performing sector.
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“The market has underestimated Moutai’s growth potential and secured outlook,” CICC said in the report. “The company has very strong pricing power in the industry and will continue to share the expansion of China’s high-end consumption.”
The valuations are already a bit stretched. Kweichow Moutai traded at 45 times projected earnings for the next 12 months for the most expensive level in at least a decade, while the multiple of Wuliangye was 46 times, according to Bloomberg data.
Meanwhile, traders are shifting focus to corporate earnings after Beijing signalled an unwinding of the ultra-loose monetary policy that has arrested declines in economic growth. Chinese first-tier liquor makers are seen as one of the few industries that offer visible earnings outlook.
Top industry players will probably double profits in the following five years amid consumption upgrade and sector consolidation, according to Citic Securities, China’s biggest listed brokerage.
Demand remains strong before the Spring Festival, or the Chinese Lunar New Year, which falls in February this year, with low inventories and stable prices for upscale liquor, according to a channel check by Shenwan Hongyuan Group.
“There will be a good start in 2021 because of the low earnings base last year and the arrival of the Spring Festival,” said Lu Chang, an analyst at the brokerage in Shanghai. “Top-tier liquor makers are the best buy in the long run.”