The stock repurchase came after Kweichow said in November that its major shareholder and its affiliate would use part of a special dividend payout to buy back a maximum of 3.1 billion yuan worth of its stocks. It is the fourth buy-back conducted by Kweichow Moutai’s controlling shareholder following repurchases in 2011, 2013 and 2014.
“The repurchase was a display of the confidence in the company’s growth outlook, recognition of the long-term investment value and support to the long-term stable and healthy development,” the company said in a statement.
Baiju is a traditional fiery tipple with a 5,000-year history and is among the world’s most consumed liquor, although it very little finds its way outside China. Earlier in the year, investors were worried about its demand outlook mainly on market concerns over the macro environment and the consumption recovery, plunging the 600 billion yuan industry into crisis with its nearly 1,000 players scrambling to cut costs amid difficult business conditions.
Hurun says Kweichow Moutai China’s most valuable brand for fifth straight year
Kweichow Moutai’s owners became the latest to join the growing number of controlling shareholders pledging confidence in their businesses. Some 490 companies have unveiled repurchase plans worth at least 60 billion yuan this year, according to financial data provider Wind. The moves are a validation of expectations about an improvement in corporate earnings amid a slew of growth-stabilising measures by the government, according to China Galaxy Securities.
“Moutai’s current share price offers a safety margin,” said Fan Jinsong, an analyst at Zhongtai Securities in Shanghai. “The stock’s valuation is skewed towards an expansion given its growth acceleration, marketing capability and control over the market share.”
Analysts say the company’s first-quarter sales acceleration reflected the relaxation of Covid-19 restrictions and with the more pronounced recovery of restaurants and business activities, the outlook for the baijiu sector was positive.
“In our view, Moutai’s better earnings visibility, underpinned by its superior brand equity, solid control over distribution channels, and strong balance offer investors unique access to well protected and resilient earnings growth in the China consumer staples space amid current market volatility,” said a note from Citigroup whose analysts have a buy rating on the stock with a target price of 2,272 yuan, implying an upside of 31 per cent from the current levels.
Shares of Kweichow Moutai rose 1 per cent to 1,728.38 yuan on Wednesday in Shanghai. The stock has gained 0.1 per cent this year, outperforming a 0.8 per cent decline in the CSI 300 Index. The liquor distiller is valued at 29.2 times estimated earnings for this year, compared with the five-year average of 35.4 times for the multiple, according to Bloomberg data.
Market conditions remained favourable with HSBC analysts saying supply-demand factors were still unbalanced despite high retail prices. They said the company had the capacity to further increase ex-factory prices with new markets also brightening the outlook for the company.
“The company has been increasing the ratio of direct sales of Moutai products and expanding its distribution sales ratio of Xiliejiu products. If Moutai maintains stronger market control over its core products, overall margins could continue to rise,” HSBC analysts said in a note which had a target price of 2,540 yuan for the stock. That would mean a 47 per cent gain from the current levels.
The stock has dropped 34 per cent from a record high seen on February 10, 2021, with a wipe-off of 1.1 trillion yuan in market capitalisation. Before that, it was investors’ favourite wager on Chinese consumption with share prices surging more than three fold since 2018.
Second-quarter profit will probably increase 19.6 per cent from a year earlier, according to the consensus estimate of analysts tracked by Bloomberg, slowing from 20.6 per cent growth recorded in the previous three months.
Kweichow Moutai is capitalised at US$300.1 billion, making it thrice as big as Diageo, the world’s second-largest alcohol maker that trades in London, Bloomberg data shows.
