Worries about China’s economic growth have hit Moutai. some people see opportunity | Wilnesh News
Prices of China’s famous liquor brands are falling, raising concerns about economic growth. The wholesale price of Kweichow Moutai’s 53-proof “Feixian” liquor listed in Shanghai fell by more than 5% in a week. Those prices are now down more than 30% from their peak in September 2021, Nomura analysts said in a research note, noting that during the housing boom from 2015 to 2021, wholesale prices for Feitianzi soared by nearly 360%. %. Also known as “Feitian Moutai,” it is a traditional Chinese liquor brand made from red sorghum and is a status symbol used in government gifts and featured at high-level business deals and weddings. This also gives old wine bottles their collectible value. It’s unclear whether the drop in visible indicators of China’s wealth means the company itself will take a big hit. Jennifer Song, senior equity analyst at Morningstar, pointed out that Kweichow Moutai has always maintained high profit margins and has “enough room” to increase ex-factory prices. Song said recent conversations with institutional clients showed their views on Moutai had not changed. Despite falling 13% year-to-date, Kweichow Moutai remains the largest stock on the Shanghai Composite Index by market capitalization, making it an important component of exchange-traded funds tracking mainland Chinese stocks. By comparison, PetroChina, the second-largest company by market capitalization on the Shanghai Composite Index, is up more than 40% so far this year. Ye Yuhua, manager of Guangzhou Liangdian Private Equity Fund, said that the stock market leaders change every few years, and upstream companies such as copper, coal, and crude oil have performed well recently. He agreed that the decline in wholesale prices would not have much impact on Moutai’s near-term profits. But he said this would affect investor confidence in the future – if there is excess inventory, whether Moutai will have to reduce market supply and start selling in the next six to 12 months. Anecdotes about the economy haven’t helped boost expectations for demand for high-end liquor. Analysts at Nomura Securities pointed out that industry data show that from July 2021 to the peak in May 2024, existing home prices in 50 major cities in China fell by 26.5%. It fell nearly 30% in May. Ye said another difference in Moutai’s stock price decline is that investors are no longer as eager to buy the dip as they were in the past. Ye owns some Moutai shares and believes the falling prices have created some opportunities. He certainly doesn’t want Maotai’s social status to change. Moutai appointed a new chairman in late April after the previous chairman took up a local government post. Huatai Financial Holdings said in a June 11 report that at last month’s shareholder meeting, “the new chairman… emphasized respecting the dealers’ profit model, while encouraging them to enhance the company’s reputation in return.” , to achieve common growth.” “We are optimistic about the company’s potential, driven by its solid brand strength and effective operations,” Huatai said, reiterating its buy rating. The stock price target is 2,214.30 yuan ($304.97). Following Moutai’s first-quarter report at the end of April, Goldman Sachs, JPMorgan Chase and Macquarie all set price targets of at least 2,000 yuan on the stock, according to FactSet data. That’s more than 35% higher than Friday’s closing price. “We believe the recent decline in wholesale prices was primarily driven by market arbitrageurs,” said Morningstar’s Song. She expects wholesale prices to rise in the coming months in light of China’s major autumn festivals. Weak second quarter The second quarter is typically the weakest quarter of the year for liquor demand, while promotions around June 18 and Moutai’s own efforts to target young people lowered final retail prices, Song said. Song also pointed out that the demand for weddings has dropped because many people who follow traditional Chinese customs believe this is not a good year to get married. According to data from Wind Information, Chinese official data last week showed that the number of marriage registrations in the first quarter dropped by 8.3% year-on-year to 1.97 million couples, the lowest level since the outbreak of the epidemic in 2020. Song said she had not changed her profit forecast for the “slightly undervalued” stock – Moutai’s share price would have to fall to 1,262 yuan to be “seriously undervalued.” The stock price closed at 1,471 yuan on Friday.
