Kweichow Moutai’s stock price upgrade could propel the valuation of China’s top liquor distiller to US$507 billion

Zhang Shidong
·3-min read

Kweichow Moutai, the world’s 16th-most valuable company, may have another 30 per cent to go, which would bolster its market capitalisation to a staggering US$507 billion, if a forecast by China’s largest home-grown investment bank is to be believed.

With liquor distillers Kweichow Moutai and Wuliangye Yibin rising to record highs for two days in a row and leading the broader-market gains since the start of the new year, China International Capital Corp (CICC) has raised the share-price estimates for top tipple makers. Their strong momentum had lifted a gauge of consumer-staple stocks by 75 per cent last year, making them the best-performing sector.

Kweichow Moutai, which has topped Industrial and Commercial Bank of China as the most valuable stock on China’s onshore market, 3.1 per cent to 2,059.45 yuan on Tuesday, extending a 69 per cent gain over the past year. Main rivals Wuliangye jumped 7.4 per cent to 319.98 yuan and Luzhou Laojiao rallied 7.3 per cent to 258.30 yuan.

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CICC set a share-price estimate of 2,739 yuan for Kweichow Moutai in a report issued this week, implying a 33 per cent gain from its current stock price. The price target translates to a multiple of 55 times earnings for the distiller, the investment bank said. Guotai Junan Securities predicts that the stock will rise to 2,317 yuan.

“The market has underestimated Moutai’s growth potential and secured outlook,” CICC said in the report. “The company has very strong pricing power in the industry and will continue to share the expansion of China’s high-end consumption.”

Profits probably rose by about 10 per cent last year, Kweichow Moutai said in a statement this week. Growth may reach 20 per cent in 2021, according to the estimates of analysts polled by Bloomberg.

The valuations are already a bit stretched. Kweichow Moutai traded at 45 times projected earnings for the next 12 months for the most expensive level in at least a decade, while the multiple of Wuliangye was 46 times, according to Bloomberg data.

The stellar run in liquor stocks has drawn attention from the regulator. The Shenzhen Stock Exchange issued an inquiry letter to Wuliangye on Monday, asking the company to clarify if there was any leak of insider information after some media reports said that the parent group achieved double-digit growth in revenue and profit last year.

Shares of liquor maker Wuliangye Yibin have been on a tear. Photo: Shutterstock Images
Shares of liquor maker Wuliangye Yibin have been on a tear. Photo: Shutterstock Images

Meanwhile, traders are shifting focus to corporate earnings after Beijing signalled an unwinding of the ultra-loose monetary policy that has arrested declines in economic growth. Chinese first-tier liquor makers are seen as one of the few industries that offer visible earnings outlook.

Top industry players will probably double profits in the following five years amid consumption upgrade and sector consolidation, according to Citic Securities, China’s biggest listed brokerage.

Demand remains strong before the Spring Festival, or the Chinese Lunar New Year, which falls in February this year, with low inventories and stable prices for upscale liquor, according to a channel check by Shenwan Hongyuan Group.

“There will be a good start in 2021 because of the low earnings base last year and the arrival of the Spring Festival,” said Lu Chang, an analyst at the brokerage in Shanghai. “Top-tier liquor makers are the best buy in the long run.”

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