Kweichow Moutai surpasses Shenzhen economy as meteoric rise sparks bubble concerns in China’s stock market

Zhang Shidong
·3-min read

China’s biggest liquor distiller Kweichow Moutai surpassed the nation’s biggest lender last year when its stock surged to an all-time high. With some analysts overwhelmingly bullish on its earnings power, the company is set to eclipse the size of Shenzhen’s economy later this year.

The stock rose 2.9 per cent to a record of 2,160.90 yuan at the close on Tuesday. It has risen 8.2 per cent in the new year, enhancing its ranking as the world’s most valuable liquor producer at 2.71 trillion yuan (US$419.1 billion). The Shanghai Composite Index has risen 3.9 per cent since December 31.

That capitalisation has already exceeded Shenzhen’s gross domestic product (GDP) of 2.69 trillion yuan in 2019. If some of the more bullish analysts are right, the maker of Mao Zedong’s favourite tipple will, at some point this year, be larger than the GDP of Shenzhen, the richest of 11 cities within the Greater Bay Area.

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That would be a testament to China’s market economy reforms, ironically in the same test-bed city hand-picked by Deng Xiaoping four decades ago. The mainland A share market last year surged past US$10 trillion in total capitalisation, the peak last seen in 2015 before its subsequent crash, and stoking bubble concerns.

Kweichow Moutai has “highly secured outlook on its production and expansion of direct sales,” said Ouyang Yujian, an analyst at Chuancai Securities in Shanghai. “The company is expected to be able to achieve double-digit growth in revenue in the next few years.”

The distiller based in southwestern Guizhou province, the most actively traded stock and fancied by domestic institutional funds, trounced Industrial and Commercial Bank of China last year as the biggest stock on the mainland’s exchanges, following a 69 per cent run-up. There are 46 buy calls and two sells on the stock, according to data compiled by Bloomberg.

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A report issued by China International Capital Corp this month said that Kweichow Moutai market cap will probably reach 3.3 trillion yuan sometime in 2021, easily outpacing Shenzhen’s estimated GDP of 2.8 trillion yuan for 2020.

Shenzhen is also the mainland’s third richest cities, behind Shanghai and Beijing whose economies are valued at 3.9 trillion yuan and 3.7 trillion yuan, respectively. Shenzhen surpassed Hong Kong in terms of GDP for the first time in 2018.

The bullish sentiment on Kweichow Moutai may put its valuation under scrutiny. The stock trades at 49 times its estimated earnings, the most expensive level in at least a decade. Analysts forecast a 19 per cent rise in the group profits this year, almost twice the rate flagged by the company in an exchange filing earlier this month.

Kweichow Moutai’s capitalisation is 60 per cent higher than the GDP of its home province. Guizhou’s economy expanded 8.3 per cent from a year earlier to 1.68 trillion yuan in 2020, according to local government statistics, while the GDP of Zunyi, the city where Kweichow Moutai is located, was only 348.3 billion yuan.

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