By Bloomberg News - Jan 9, 2011
Guo Haoda says he doesn’t care that the price of Moutai liquor keeps rising. For the building contractor in Beijing, sharing the 106-proof sorghum-based spirit is the best way to forge ties and clinch contracts.
“In China, deals are done at the dinner table, not the boardroom,” said Guo, 37, who paid 2,200 yuan ($330) for two bottles of the grain liquor at a supermarket, enough to cover the rent of a studio apartment. “Breaking out the Moutai is still the easiest way to build trust with prospective customers and officials.”
Investors are betting that consumers like Guo will keep paying more for Kweichow Moutai Co.’s namesake spirit, shielding the world’s second-largest distiller by market value from an erosion in profit as inflation accelerates. The company, which took its name from the town in southern Guizhou province, increased wholesale prices by 20 percent this month.
Analysts are predicting the stock will gain 37 percent in the next 12 months, according to data compiled by Bloomberg, as higher liquor prices protect the widest profit margins among domestic competitors.
Moutai’s shares have rallied 10 percent since October, when the People’s Bank of China increased lending rates for the first time since 2007. The benchmark Shanghai Composite Index slumped 5.4 percent in the same period. The central bank ordered banks to set aside more reserves six times last year and raised borrowing costs twice.
Toasting Nixon
Moutai, also known locally by the generic name for white spirits, or “baijiu,” earned its cachet as the alcohol of choice by Chinese leaders and diplomats to honor visiting dignitaries.
Chinese Premier Zhou Enlai toasted U.S. President Richard Nixon with Moutai to mark his 1972 visit to the communist country that paved the way for a normalization of relations between the two nations. The liquor was served in 1984 after U.K. Prime Minister Margaret Thatcher signed the agreement to hand over Hong Kong to China in July 1997.
Kweichow Moutai’s shares have surged almost sixfold since its 2001 initial public offering as household incomes increase with economic growth that averaged 10.3 percent a year over the past decade. The benchmark Shanghai Composite Index has gained 51 percent over the same period.
China’s per capita annual urban household disposable income almost tripled to 17,175 yuan in the decade through 2009, data from the nation’s bureau statistics show.
“Moutai is in an industry that isn’t as sensitive to the economic cycle and its supply always falls short of demand,” Leo Gao, who helps oversee about $600 million at APS Asset Management Ltd. in Shanghai, including Moutai shares. “The stock is significantly undervalued.”
Profit Margin
Kweichow Moutai’s profit margin, at 49 percent in 2009, is the highest among China-based liquor makers and compares with the 8.9 percent average for the industry, according to data compiled by Bloomberg. Profit margin, which measures the percentage of sales earned after subtracting costs, rose to an average 52 percent in the first nine months of last year, the data show. Net income in the three quarters ended September rose 10 percent to 4.2 billion yuan.
The stock will climb to 246.12 yuan in the next 12 months, according to the average of analyst estimates compiled by Bloomberg. Moutai’s shares fell 0.3 percent to 179.72 yuan at the close of Shanghai trading on Jan. 7.
The company is trading at 36 times reported earnings, almost than double the 19 times profit investors are asking for Diageo Plc, the London-based maker of Smirnoff vodka that is bidding to take control of the parent of Shanghai-listed Sichuan Swellfun Co. Wuliangye Yibin Co., the largest Chinese liquor maker by sales, is valued at 29 times historical earnings.
‘A Bit Old-Fashioned’
Moutai and other baijiu makers face increasing competition from wine. Consumption of spirits rose 15 percent to 4.18 billion liters in 2010 from 2005, lagging the 73 percent gain in sales of wine, data from Euromonitor International show.
Spirits, which include baijiu, whisky and brandy, made up for 7.9 percent of China’s alcohol sales last year, with wine accounting for 6.6 percent, according to the London-based researcher.
“The younger generation believe drinking wine is more fashionable while spirits are a bit old-fashioned,” said Wang Jianhui, an analyst at Southwest Securities Co. in Beijing.
Moutai plans to double its annual capacity to 40,000 tons by the end of 2015 to cater to demand, five years earlier than its previous target, Chairman Yuan Renguo said in a Dec. 20 interview with the People’s Daily newspaper. The company didn’t respond to requests for comment.
Expansion Plans
Jiangsu Yanghe Brewery Joint-Stock Co., the third-biggest liquor maker in China by market value, said Jan. 4 it plans to spend 1.7 billion yuan to expand its liquor operations over the next two years and acquire a stake in local rival Jiangsu Shuanggou Distillery Stock Co.
KKR & Co., the New York-based buyout firm, agreed last month to invest in Beijing-based VATS Liquor Store, which distributes French wines including Petrus and sells Chinese liquor labels made by Wuliangye Yibin.
For Guo, the building contractor, the work of securing contracts begins after sundown in Beijing’s restaurants and nightclubs.
“People are happy if there’s Moutai on the table,” said the businessman as he walked to his Volkswagen Passat with the two white bottles of Moutai in hand. “In this business, it’s important to keep people happy.”
- Michael Wei. Editors: Chua Kong Ho, Bret Okeson |
发表于 2011-1-9 21:19
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