January 24, 2021
Markets PAID

Moutai Helps Guizhou Drink Away its Woes—and Debt, Too

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A  Kweichow Moutai distillery in Guizhou province, among China’s poorest.

A Kweichow Moutai distillery in Guizhou province, among China’s poorest.

Photo: Yang Wenbin/Zuma Press

Investors have been binge drinking shares of Chinese liquor giant Kweichow Moutai for the past couple of years. The stock’s spectacular rally has helped one of China’s poorest provinces, too.

Shares of Moutai have more than tripled in the past two years, making it by far the world’s most valuable alcohol company. Moutai’s market value broke through $400 billion Tuesday after hitting another record. That means the company, the most valuable listed in mainland China,  is worth more than
Nestlé
and
Procter & Gamble.

The famously fiery spirit—often served at state banquets—has become a status symbol, as well as an indicator of Chinese consumers’ spending on high-end goods. Its premium brand means it is able to maintain pricing power. Moutai’s revenue and profit grew around 10% in 2020, the company said this week.

Some more premium versions of the liquor have become an investment in themselves. That has prompted state newspapers such as the People’s Daily to weigh in: “Alcohol is for drinking, not speculating, and definitely not for corruption.”

Moutai shares’ gain has benefited investors, including many foreign ones. But it has also helped the province of Guizhou, where the company is based. Moutai’s state-owned parent, which owns 58% of the company, agreed in December to transfer a 4% stake—worth around $16 billion—to a separate investment company owned by the provincial government.

The share transfer is basically just moving the stake from one part of the state to another, but the move hinted that the local government might sell the stake to beef up government coffers. There was a similar share transfer a year earlier, and the government has sold down most of that stake in recent months.

Guizhou is among the poorest provinces in China. Its gross domestic product per capita in 2019 was the equivalent of $7,186, 35% below the national level. Earlier in 2020, Moutai’s parent company said it planned to buy shares of a struggling expressway company from the local government.

The higher Moutai’s share price, the merrier for the Guizhou government. But other investors should be wary of a hangover: Moutai already trades at 49 times forward earnings.

Write to Jacky Wong at JACKY.WONG@wsj.com