Kweichow Moutai is the most famous Chinese liquor brand, which is considered as the national liquor in China.
Zhang Peng | LightRocket | Getty Images
BEIJING – The largest stock in the Chinese ‘A’ stock market ‘on the continent is a liquor company that analysts are betting on long-term, despite its decline in the past month.
Kweichow Moutai sells ‘baijiu’ which has an alcohol content of about 43% to 53% and can cost about a few hundred US dollars per bottle. Baijiu – literally ‘white spirits’ – is an important aspect of Chinese business and government services forging relationships and transactions.
The stock was down about 1% from Monday morning, reaching a 2020 profit of around 70%.
Earlier this year, the rapid price hike of the stock drew internet memes comparing it to the GDP of Chinese cities and the high flying price of bitcoin. Cryptocurrency bitcoin has risen more than 80% this year to more than $ 60,000.
Moutai’s share price climbed 30% from December 31 to a record high just before the New Year in mid-February, when it reached a market value of $ 500 billion. It has been shaved off more than $ 100 billion in recent weeks as shares fell more than 20% amid a wide sell-out in Chinese stocks.
But Kweichow Moutai, according to Wind Information, still has a greater valuation than any other A-share on the continent, including the giant ICBC bank.
Moutai is the strongest brand in the high baijiu market and will increase its share even as China’s beverage culture declines, says Luo Hao, equities analyst at Global Capital Investment at China Asset Management.
He points to the steady growth and returns of investors for investors as reasons why he prefers the stock.
Moutai expects to earn about 97.7 billion yuan ($ 15.1 billion) in operating income last year, with a 10% growth amid the coronavirus pandemic. According to Bernstein analysts, the company will announce the final results for 2020 by the end of 2020.
Growing foreign ownership
Wind data showed that as of March 11, the liquor supply had the largest number of non-mainland institutions investing in it under A shares, with 101 businesses owning 7.7% of the total market share. The database shows that it’s just a handful of companies.
Moutai and another baijiu manufacturer, Wuliangye, are the two best members of MSCI’s China A Index, followed by many foreign funds that want to invest in China.
“We have a long-term positive view of the China Ultra Premium Baijiu. We expect superior operating value growth to be driven by rising revenues that will increase affordability,” Bernstein analysts said in a note this month.
Although they prefer Wuliangye over Moutai because of the supply chain and management, Bernstein analysts still have a “buy” rating on Moutai and a price target of 2,500 yuan per share. That is more than 20% higher than Moutai’s closing price of 2,026 yuan per share on Friday.
CNBC’s Michael Bloom contributed to this report.