China liquor giant Moutai defies market slump as defensive play

CHINESE liquor giant Kweichow Moutai is back in favour in the stock market after a sluggish 2021 as investors bet on its strong pricing power and earnings resilience from Covid-19 headwinds.

The company’s shares have at one point added US$33 billion in market value since their recent low on Mar 15. Their advance of 11 per cent beats market benchmark CSI 300 Index’s 0.7 per cent rise. The stock ended last year down by a fifth from an all-time high in February after authorities warned about excessive rises in asset prices.

Moutai, the maker of potent baijiu liquor that’s a staple in Chinese banquets, is considered a defensive stock at a time when Covid lockdowns cloud the growth outlook of many domestic firms. The distiller, which is slated to announce first-quarter results on Apr 26, has the fourth-highest gross margin among CSI 300 Index companies.

“At this time, few A-shares companies other than Covid vaccine makers and testing providers have more guaranteed growth and higher margins than Moutai,” said Shen Meng, director of Beijing-based boutique investment bank Chanson & Co. 

Moutai is among the top performers in the CSI 300 consumer staples index for the past month.

Seasonal sales

March and April have historically been a low season for its sales, which peak in holiday periods such as Chinese New Year and Mid-Autumn Festival, according to Euan McLeish, analyst at Sanford C Bernstein. And there’s a significant gap between the factory and retail prices of Moutai’s products, meaning that if consumer demand is weak, it will mostly be distributors rather than the company that will lose out, he said.

McLeish sees “positive signals” in Moutai’s guidance last month of 15 per cent growth in revenue in 2022, an increase from 10.5 per cent rise forecast last year, as well as the company’s move to boost its direct-channel sales.

The broker maintains an outperform rating with a target of 2,400 yuan, 35 per cent higher than Friday’s closing price. If the shares rebound further, the liquor maker that bruised many high-profile funds last year may give investors reason to cheer.