The Only Analyst Who Isn't Drinking to Moutai's Rise Says Sell

(Bloomberg) -- It takes a strong stomach to be bearish on Chinese distiller Kweichow Moutai Co.

Its 60 percent rally this year has made it one of China’s best-performing large-caps, putting it on course to be the first mainland-listed stock to reach 1,000 yuan. It’s also one of the most loved companies onshore, with all but one of the 39 analysts tracked by Bloomberg telling investors to keep on buying.

Allen Cheng at Morningstar Inc. is the lone bear, bucking the trend when he downgraded the maker of baijiu liquor to sell earlier this month. Though he was reluctant at first, his financial models were telling him to make the call, and warns there may be no more positive catalysts left for the stock until the end of next year.

"It’s not a good entry point," Cheng said in a phone interview, noting that the price now far exceeds his target of 830 yuan. "There is no more positive news left to price in through the end of 2020."

China’s biggest distiller closed at a record high of 952 yuan on Wednesday, 15 percent higher than Cheng’s target and exceeding those of another 10 brokers, including Credit Suisse and JPMorgan Chase & Co., according to Bloomberg data. It’s up more than 15,000 percent since its 2001 debut in Shanghai. The stock fell 0.7 percent on Thursday.

Cheng’s sell rating stands out given the stock’s performance, which bulls say justify its scorching valuation as sales growth and consistently high margins defy worries about a consumer spending slowdown. But Cheng sees Moutai’s shipment growth slowing in the second quarter. He says he wants more clarity from the liquor maker on its plans to boost profitability by selling more product directly to consumers.

An investor following his recommendation on Moutai over the past year would have seen a return of around 5.7 percent, compared with a 45 percent gain for those following more bullish calls from the likes of Macquarie Group Ltd., according to data compiled by Bloomberg.

Cheng’s bearishness doesn’t end with Moutai. His sell recommendation on China Resources Beer Holdings Co. produced the best total return from the stock over the past year among analysts covering the stock during the period, according to data compiled by Bloomberg. His call to sell Shanghai-traded Tsingtao Brewery Co. generated one of the worst returns. Among the 17 stocks he covers, he only has one buy rating.

One group of investors may be in agreement with Cheng’s call on Moutai. Foreign investors began to offload their shares last week, selling a combined 1.5 billion yuan ($224 million) of Moutai shares and lowering that segment’s ownership to 9.4 percent of outstanding shares from 9.6 percent in March, according to data compiled by Bloomberg.

--With assistance from Ludi Wang.

To contact the reporters on this story: Jeanny Yu in Hong Kong at jyu107@bloomberg.net;Cindy Wang in Taipei at hwang61@bloomberg.net

To contact the editors responsible for this story: Sofia Horta e Costa at shortaecosta@bloomberg.net, David Watkins, Kana Nishizawa

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