Kweichow Moutai is the most famous brand of alcoholic drinks in China, considered the national drink of China.
Zhang Peng | LightRocket | Getty Images
BEIJING – The biggest share in the Mainland’s “A share” market is a beverage company that analysts are betting on in the long run, despite its decline last month.
Kweichow Moutai sells “baijiu” which has an alcohol content of about 43% to 53% and can cost around a few hundred US dollars a bottle. Baijiu – literally “white spirits” – is a staple at Chinese business and government dinners to forge relationships and businesses.
The shares fell about 1% year to date on Monday morning, keeping 2020 gains at around 70%.
Earlier this year, the stock’s rapid rise in price attracted memes from the Internet comparing it to the GDP of Chinese cities and the high price of bitcoin. Cryptocurrency bitcoin has increased by more than 80% this year, to more than $ 60,000.
Moutai’s stock price had risen 30% since December 31 to a record before the Lunar New Year in mid-February, when it reached a market value of $ 500 billion. That has been reduced by more than $ 100 billion in the weeks since, as shares have fallen more than 20% amid a broad liquidation of Chinese shares.
But Kweichow Moutai still has a higher rating than any other A stock on the continent, including giant bank ICBC, according to Wind Information.
Moutai is the strongest brand in the sophisticated baijiu market and will increase its share even as China’s consumer culture declines, said Luo Hao, equity analyst at Global Capital Investment at China Asset Management.
He pointed to the constant growth of the company and the return to investors as reasons why he prefers the shares.
Moutai expects to have gained about 97.7 billion yuan ($ 15.1 billion) in operating revenue last year, a 10% increase amid the coronavirus pandemic. The company is expected to release final 2020 results later this month, according to Bernstein analysts.
Growing foreign ownership
Wind data showed that, on March 11, the stock of alcoholic beverages had the largest number of non-continental institutions investing in it among A shares, with 101 companies holding 7.7% of the total market. This compares to just a handful of companies earlier this year, the database showed.
Moutai and another baijiu maker, Wuliangye, are the two main members of the MSCI’s China A index, monitored by many foreign funds looking to invest in China.
“We have a positive long-term view of China Ultra Premium Baijiu. We expect the higher growth in industry value to be driven by increased income, which will continue to drive accessibility, leading to higher trade,” said Bernstein analysts in note this month.
Although they prefer Wuliangye to Moutai because of concerns about supply chain and governance, Bernstein analysts still have a “buy” rating for Moutai and a target price of 2,500 yuan per share. That’s more than 20% of Moutai’s Friday closing price of 2,026 yuan per share.
– Michael Bloom of CNBC contributed to this report.