Moutai Profit Rises 13% as China Liquor Market Remains Solid

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Liquor giant Kweichow Moutai Co. said its net income rose 13% in the first half of 2020 as the recovering local economy boosted demand for its ultra-premium line of baijiu, China’s national drink, although growth has not yet returned to pre-pandemic levels.

Earnings for the first six months were 22.6 billion yuan ($3.2 billion), the company said in a statement to the Shanghai stock exchange on Tuesday. Revenue for the period jumped 11% to 45.6 billion yuan. For the comparable period last year, it had reported a 26% rise in net income and 17% rise in revenue.

Moutai has shown exceptional resilience in the past few years, making it an investor darling and China’s biggest stock. Demand for its fiery baijiu -- scarce in supply and highly coveted by the Chinese elite -- has survived a local economic slowdown, U.S.-China trade tensions, and more recently, the coronavirus pandemic.

The baijiu maker saw buoyant first-quarter earnings despite the virus spreading in China during that period, forcing the government to impose strict social-distancing measures including a lockdown in some places and a ban on all public gatherings.

Baijiu Bribes

There are signs, however, that the liquor maker may be facing pressure over its high prices. Moutai saw a record $25 billion wipeout in its market valuation on July 16 after the influential state-run publication People’s Daily took aim at its price tag, saying the alcohol is often used in corruption cases.

While revenue growth remained solid in the last quarter, the slower volume growth suggests a more difficult recovery in demand, Bernstein analysts led by Euan McLeish wrote Tuesday. The brokerage reduced its full-year revenue growth estimate to 12%, down from 16% earlier.

Moutai shares fell as much as 2.2% in early trading Wednesday. The stock is up 39% for the year, touching a record high of 1781.99 yuan on July 13.

The distiller, which makes baijiu out of sorghum and wheat, could see demand weaken in the usually buoyant autumn months if Chinese consumers shun socializing amid resurgences of the coronavirus outbreak.

China’s new cases of infection this week were the most in over four months as the country battles outbreaks in its northeastern and western regions.

Demand for ultra-premium baijiu is down as much as 40% from a year ago with very few banquets being hosted during the wedding season and the annual dragon boat festival, a separate Bernstein note said on July 24, citing major distributors of Moutai and Wuliangye Yibin Co Ltd.

Earlier this year before the pandemic, the Chinese alcohol giant gave guidance of about 10% growth for full-year sales for 2020 -- its weakest growth in five years.

©2020 Bloomberg L.P.

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