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China's Kweichow Moutai misses expectations for first time since 2015

[HONG KONG] Kweichow Moutai Co said its revenue and earnings will rise about 15 per cent respectively for 2019, missing analyst estimates for the first time since 2015.

The disappointing numbers, based on the company's preliminary calculations, is likely to raise concern that China's economic slowdown has now spread to its hitherto resilient consumer sector. The world's most profitable distiller also set a sales growth target of 10 per cent for 2020, a more modest goal than last year.

Moutai's stock plunged by as much as 5.7 per cent in morning trading on Thursday, the most since May, and dropped below its 100-day moving average, which had been a support level for most of 2019.

Net income for the latest full year is expected to be 40.5 billion yuan (S$7.8 billion) based on preliminary estimates, the company said on Thursday in a filing to the Shanghai stock exchange. Revenue is expected to climb 15 per cent to 88.5 billion yuan.

Both metrics were under expectations: Analysts estimated that the company would post 90 billion yuan in revenue and 43 billion yuan in net income for 2019, according to data compiled by Bloomberg.

Moutai, whose fiery grain liquor is a status symbol in China, had previously seemed immune to the economic malaise even as consumers began paring spending amid slowing jobs growth and factory output. Until now, it's consistently outperformed expectations as its baijiu remained highly coveted among the Chinese middle class. Because of its long distilling period of five years and land constraints, Moutai's liquor is always in short supply.

The company, one of China's most prominent consumer brands, has been beset by internal friction in the past year. Its former chairman, Yuan Renguo, abruptly left the helm in 2018 and was arrested earlier this year on suspicion of taking bribes. Other former executives have also been arrested for similar reasons, and the company's new management has shut down its e-commerce unit and mounted an internal campaign to clean up its distributor network.

"It looks like Moutai fared worse than expected in the fourth quarter, which is typically a peak season for liquor," said Allen Cheng, a Singapore-based analyst with Morningstar Inc. "The market was probably too complacent about its sales during a period when Moutai was also dealing with internal structural changes."

Moutai's shares almost doubled in 2019, and 43 out of 45 brokerages tracked by Bloomberg recommend buying the stock.

For 2020, the company aims to sell 34,500 tonnes of liquor compared to the 31,000 tonnes goal it had for 2019, it said in a Dec 27 statement. Parent firm Kweichow Moutai Group also plans to invest as much as 15.8 billion yuan across 12 new projects, including two facilities each with 56,000 tons of production capacity.

BLOOMBERG