Chinese spirits, which have drawn comparisons to Bitcoin, hold on to 2020 gains
K Weichow Moutai is the most famous Chinese liquor brand, which is considered the national spirit in China.
Zhang Peng | LightRocket | Getty Images
BEIJING – The largest stock in mainland China, A Share is a liquor company that analysts are betting on for the long term despite last month’s slump.
K Weichow Moutai sells “Baijiu,” which has an alcohol content of around 43% to 53% and can cost around a few hundred US dollars per bottle. Baijiu – literally “white ghosts” – is a staple in Chinese business and government meals for building relationships and business.
The stock was down around 1% year-to-date on Monday morning, holding 2020 gains of around 70%.
Earlier this year, the stock’s rapid surge attracted Internet Memes, which it compared to Chinese cities’ GDP and the soaring price of Bitcoin. Bitcoin in cryptocurrency is up more than 80% this year to over $ 60,000.
Moutai’s share price was up 30% from December 31, to a record high just before the New Year celebrations in mid-February, when it hit a market value of $ 500 billion. That has declined by over $ 100 billion in the past few weeks as stocks fell more than 20% on a widespread sell-off in Chinese stocks.
However, according to Wind Information, K Weichow Moutai still ranks higher than any other stock in Mainland A, including the giant ICBC bank.
Moutai is the strongest brand in the high-end baiijiu market and will also wane its share as China’s drinking culture wanes, said Luo Hao, an equity analyst at Global Capital Investment at China Asset Management.
He pointed to the company’s steady growth and return on investment for investors as reasons why he favors the stock.
Moutai estimates it posted operating income of roughly 97.7 billion yuan ($ 15.1 billion) last year, up 10% amid the coronavirus pandemic. According to Bernstein analysts, the company will publish its final results for 2020 at the end of this month.
Growing foreign ownership
Wind data showed that as of March 11, the largest number of non-mainland A-share institutions were investing in the liquor inventory, with 101 companies holding 7.7% of the total market share. That came out from only a handful of companies earlier this year, as the database showed.
Moutai and another Baijiu maker, Wuliangye, are the top two members of MSCI’s China A Index, which is measured by many overseas funds looking to invest in China.
“We have a positive long-term view of the China Ultra Premium Baijiu. We expect the superior growth in industry value to be driven by rising incomes, which will further increase the affordability of up-trading,” Bernstein analysts said in a note earlier this month .
While they prefer Wuliangye to Moutai for supply chain and corporate governance reasons, Bernstein analysts still have a buy rating on Moutai and a price target of 2,500 yuan per share. That’s more than 20% more than Moutai’s closing price of 2,026 yuan per share on Friday.
– CNBC’s Michael Bloom contributed to this report.