Chinese Liquor Giant Moutai Hits Heady $500 Billion Valuation
February 10 2021 - 9:04AM
Dow Jones News
By Chong Koh Ping and Joanne Chiu
Kweichow Moutai Co., the best-known distiller of the fiery
Chinese spirit baijiu, has risen to a market value of more than
half a trillion dollars, making it the most visible symbol of
investor euphoria in China.
Moutai shares closed at a record high Wednesday, on the last
trading day before a weeklong Lunar New Year holiday. They have
more than doubled in the past 12 months, gaining more than 30%
since the start of 2021.
The rally has turned the liquor company into one of the world's
most valuable consumer-goods companies, outstripping giants such as
Procter & Gamble Co., Nestlé SA and LVMH Moët Hennessy Louis
Vuitton SE.
It is now roughly as important to the Chinese market as Apple
Inc. is in the U.S., accounting for 7.3% of the Shanghai Composite
Index while Apple makes up about 6.7% of the S&P 500. China's
biggest technology companies, Tencent Holdings Ltd. and Alibaba
Group Holding Ltd., aren't listed on the mainland.
Shanghai-listed Moutai makes an unlikely bedfellow for these
Western blue chips. The company is majority owned by the local
government in the southwestern Chinese province of Guizhou and its
chairman, Gao Weidong, was the regional government's top transport
official before assuming his post last year. The best-compensated
executive listed in its 2019 annual report received the equivalent
of about $130,500.
Compared with sluggish state-owned enterprises in areas such as
banking or oil, Moutai boasts more attractive growth prospects.
Analysts polled by FactSet expect net income to grow by 11.5% in
2020 and around 19% annually for the next two years.
It is also highly profitable: analysts forecast it will earn
$8.5 billion in net income for 2021, on revenue of $17.6 billion,
FactSet polling shows. In contrast LVMH, for example, is expected
to earn $9.3 billion from revenues of $67.8 billion for the same
calendar year.
Investors are willing to pay handsomely for that growth. Moutai
stock closed at 2,601 yuan, the equivalent of $403.34, on
Wednesday. It trades on 55 times expected earnings for the next 12
months, FactSet data shows, compared with an average of 26 times
over the last five years.
Foreigners have substantial holdings of Moutai, which only
reports financial results in Chinese. They hold about 8% of the
stock -- worth $40 billion at current prices -- through the Stock
Connect program, data from the Hong Kong stock exchange shows. U.S.
manager Capital Group is among Moutai's backers.
Enthusiasts point to the scarcity value of Moutai's namesake
baijiu, since production is limited, and the growing disposable
incomes of China's middle class. Premium baijiu is a status symbol
and is bought for gifts, weddings, parties and investment.
"Chinese consumers are drinking less overall but drinking better
products. Moutai is the key beneficiary of this premiumization
process," said Wei Wei Chua, a portfolio manager at Mirae Asset
Global Investments in Hong Kong. Mr. Chua said he had started
investing in Moutai shares a couple of years ago, and believed
price increases this year could support its earnings growth.
Individual investors dominate trading in Shanghai and Shenzhen,
which in the past has made China's onshore markets prone to
boom-and-bust cycles. A wave of money has washed into the markets
in recent months as many of these retail investors have backed new
mutual funds.
William Lo, a director at SilkyWater Asset Management in Hong
Kong, said valuations for many Chinese stocks were frothy. But he
said investors looking for fast-growing companies with strong
brands in China had no choice but to invest in companies such as
Moutai.
New investors were buying into Moutai based on premiumization, a
story that hasn't changed much in three years, said Allen Cheng, an
equity analyst at Morningstar in Singapore.
Mr. Cheng reckons the company will lift production capacity
about 10% annually for the next three years. He said that could end
the supply shortages that have helped lift prices for Moutai's
drinks and its shares.
When it comes to the stock price, Mr. Cheng cautioned: "This is
not a pure fundamental story that we're talking about. But it's
also hard to judge where the peak is."
Write to Chong Koh Ping at chong.kohping@wsj.com and Joanne Chiu
at joanne.chiu@wsj.com
(END) Dow Jones Newswires
February 10, 2021 08:49 ET (13:49 GMT)
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