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Kweichow Moutai's H1 sales disappoint by its own high standards

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Kweichow Moutai Co's revenue rose 17 per cent in the first half of 2019 compared to a year earlier - a strong showing for most mature consumer brands. But by the high standards of China's premier grain liquor, it's underwhelming.

[SHANGHAI] Kweichow Moutai Co's revenue rose 17 per cent in the first half of 2019 compared to a year earlier - a strong showing for most mature consumer brands. But by the high standards of China's premier grain liquor, it's underwhelming.

For the world's most profitable distiller, which also briefly became China's first 1,000 yuan stock, revenue growth is the slowest since 2016 and has dipped below its 10-year average, according to data compiled by Bloomberg. Moutai reported revenue of 41.2 billion yuan (S$8.15 billion) on Wednesday and a net income of 20 billion yuan, 27 per cent more than a year before.

The latest earnings show that the distiller has its work cut out in the second half if it wants to maintain a winning streak that's seen it consistently topping its own estimates. Moutai - which has benefited from rising demand for its sought-after baijiu liquor as China's middle class has become more affluent - will now have to weather economic weakness in its home market where growth has dipped to the slowest since 1992.

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One thing that shields this investor darling from China's weak economy is the unique scarcity of its product. Moutai's baijiu remains the toast of choice among wealthy Chinese consumers, ensuring demand stays high, but a long distilling period of five years and constrained land to grow the grain used to make its liquor keeps stock limited.

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"We think Moutai's supply and demand structure has not changed, so we can regard quarterly fluctuations as unimportant," Great Wall Securities analysts Zhang Yuguang and Huang Ruiyun wrote in a note Monday, adding that there wasn't much to worry about in the long term.

BLOOMBERG