Kweichow Moutai is the most famous Chinese liqueur brand, which is considered the national drink in China.
Zhang Peng | LightRocket | Getty images
BEIJING – The largest stock in China’s mainland “A-share” market is a liquor company that analysts are betting on for the long term, despite the plunge in the past month.
Kweichow Moutai sells “baijiu” with an alcohol content of about 43% to 53% and can cost about a few hundred dollars a bottle. Baijiu – literally ‘white ghosts’ – is an important part of Chinese business and government dining to forge relationships and deals.
The stock fell about 1% year-to-date from Monday morning, with a gain of about 70% in 2020.
Earlier this year, the rapid price increase of the share of internet memes pulled it compared to the GDP of Chinese cities and the high price of bitcoin. Cryptocurrency bitcoin is up more than 80% this year to above $ 60,000.
Moutai’s stock price had surged 30% from Dec. 31 to a record high just before the Lunar New Year in mid-February, when it reached a market value of $ 500 billion. That’s been shaved by more than $ 100 billion in recent weeks as stocks fell more than 20% amid a wide sell-off in Chinese stocks.
But Kweichow Moutai still has a higher valuation than any other mainland A-share, including the giant ICBC bank, according to Wind Information.
Moutai is the strongest brand in the high-end baijiu market and will increase its share even as China’s drinking culture declines, said Luo Hao, equity analyst with Global Capital Investment at China Asset Management.
He pointed to the company’s steady growth and returns to investors as reasons why he prefers stocks.
Moutai expects it to have earned approximately 97.7 billion yuan ($ 15.1 billion) in operating revenue last year, a 10% growth during the coronavirus pandemic. According to Bernstein analysts, the company will publish final results for 2020 at the end of this month.
Growing foreign ownership
Wind data showed that as of March 11, the beverage inventory had the largest number of non-mainland establishments investing in it under A shares, with 101 companies holding 7.7% of the total market share. That’s more than a handful of companies earlier this year, the database showed.
Moutai and another baijiu manufacturer, Wuliangye, are the top two members of the MSCI China A index, which is tracked by many foreign funds looking to invest in China.
“We have a positive long-term view of the China Ultra Premium Baijiu. We expect superior value growth in the industry to be driven by rising incomes, which will continue to drive affordability,” Bernstein analysts said in a note this month.
Although they prefer Wuliangye to Moutai due to supply chain and governance concerns, the Bernstein analysts still have a ‘buy’ rating on Moutai and a price target of 2500 yuan per share. That’s up more than 20% from Moutai’s closing price on Friday of 2,026 yuan per share.
– CNBC’s Michael Bloom contributed to this report.