China Consumer

Drink to that

Moutai reaches new heights


Moutai share price hits record

One week, and two very different experiences for Shanghai shoppers eager to get hold of a bottle of Moutai for China’s National Day celebrations on October 1.

At one end of the scale were those Costco customers who’d paid Rmb299 ($41.91) for annual membership of the American group’s shopping club. This entitled them to buy one bottle from the 10,000 which the shop had in stock on September 13.

Costco’s appearance on Chinese shores in late August has sparked a consumer frenzy (see WiC464), with shoppers emptying the shelves of its initial Moutai stock almost immediately. The next batch of the liquor, which appeared in mid-September, also disappeared in minutes.

The problem is that there are not many places in China where consumers can buy a bottle of Moutai’s famous 500-millilitre, 53% proof Feitian (which means ‘Flying to the Sky’) brand for its Rmb1,498 recommended retail price. A standard bottle typically sells for about Rmb3,000, if shoppers can actually get their hands on one, given how distributors have been hoarding stock – rather than selling it – to push up prices.

Perhaps this is what prompted the buyer at the other end of the scale to Costco’s customers, who paid Rmb960,000 for 12 bottles of 1977 Feitian during an exclusive Moutai auction at Christie’s in Shanghai on September 21 (for a backgrounder on Moutai auctions, see WiC455). Or perhaps the buyer was planning to toast the 70th anniversary of the People’s Republic of China this October with Moutai as Mao Zedong did on October 1, 1949.

Moutai’s special place in Chinese history and culture is one reason why Shanghai-listed Kweichow Moutai is now the world’s most valuable drinks company. As WiC went to press, the market value of the spirits distiller stood at $206 billion, more than twice that of its nearest international comparable, Diageo, which is listed in London.

At Rmb1,174 per share (as of Thursday’s close), the stock has quintupled since early 2016 when it was trading around the Rmb216 level. And financial analysts believe – in spite of hitting record highs and reaching the highest stock price of any A-share – it still has upside potential, with forecasts of 20% compound annual earnings growth over the next two years.

At its current level, the stock is trading on a forward consensus earnings multiple of 29 times. CICC, a local broker, has a price target in the 35 to 40 times range.

Kweichow Moutai’s outperformance is one of the main reasons why the Shanghai-Shenzhen CSI 300 Index is up 28% so far this year. Some media outlets wonder whether it is sustainable. But it seems that the only bubbles most analysts foresee are those coming out of a genuine Moutai bottle. For as Christie’s says, “good quality bubbles” are evidence that the liquor has not been counterfeited.

This is one of the other reasons why Moutai was so popular at Costco. Shoppers knew it was the real deal in more ways than one. The media reports that there were a few scalpers, known in Chinese as huang nui or ‘yellow cows’, standing outside the store hoping for business. However, consumers weren’t interested in selling to them.

Over the past year, Moutai’s new chairman, Li Baofang, has been on a mission to stamp out counterfeits and stop distributors withholding stock. He has also set up a direct sales channel to improve pricing consistency. This should all benefit the company’s bottom line.

Over the last few months, 400 distributors have been cut from the company’s 3,000 strong wholesale list. Indeed, one other reason why prices have been rising is because more distributors fear being cut from the list and have stockpiled bottles while they still can.

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