Heady days for liquor shares

Overseas investors take a shine to baijiu makers as sales-surge promises profits

Shares of listed Chinese liquor firms surged in the first trading week after the Spring Festival holiday, bolstered by heavy sales of alcoholic beverages during the vacation, which raised hopes of fat profits, and extended overseas investors' interest.

Shares of Wuliangye, which is based in Yibin of Sichuan province, rose almost 6 percent to 64.7 yuan ($9.6) on Feb 11, when China's stock markets reopened for trading after the weeklong holiday.

On the same day, Kweichow Moutai, the Chinese liquor maker with the highest market value, saw its share price rise nearly 5 percent to 725.30 yuan, surpassing the 700-yuan mark for the first time since Oct 8.

Overseas investors bought Kweichow Moutai shares worth 1 billion yuan via the stock connect mechanism between Shanghai and Hong Kong - the highest daily investment on that day.

Similarly, Wuliangye attracted 521 million yuan from overseas investments via the Shenzhen-Hong Kong Stock Connect, which also registered the highest daily inflow so far.

Data from Shanghai-based market information provider Wind Info showed the Chinese A-share sector for baijiu, or Chinese liquor, surged 2.46 percent by Feb 15.

Analysts from China Merchants Securities wrote in a note that sales of baijiu during the Spring Festival holiday, which is the peak season for this product, were as per expectations.

Sales of Kweichow Moutai, which is rated as the high-end baijiu with its wholesale price between 1,750 yuan and 1,800 yuan per bottle, overtook that of all other brands as the supply could not meet consumer demand at some places.

The wholesale price of Wuliangye is now set between 795 yuan and 810 yuan per bottle. Given that the price of Moutai is still quite high, there is enough room for sales of Wuliangye to grow, in terms of mid- to high-level consumption of baijiu, according to the CMS note.

As MSCI will adjust its weighting for A shares later this month and the overseas capital will continue to flow into the beverage industry, baijiu makers with better brand image and stronger profitability for 2019 will promise more room for growth in terms of share prices, the CMS analysts wrote.

Interim full-year results showed that most Chinese baijiu companies performed fairly well despite the economic slowdown in 2018. Sichuan-based Shede Spirits Co Ltd reported the highest annual net profit growth rate, which will likely come in at 151 percent year-on-year.

Kweichow Moutai reported its profit would increase 25 percent year-on-year in 2018 and Wuliangye said its growth rate would reach up to 40 percent.

However, baijiu companies experienced a hard time in the second half of last year. The baijiu index compiled by Wind Info shed almost 32 percent in the second half of 2018.

Public funds were significantly underweight on listed baijiu makers. Kweichow Moutai was held 17 percent less and Wuliangye was down by 20 percent.

He Jie, a portfolio manager at Qianhai Alliance Asset Management, said the slide of the baijiu sector in the last six months of 2018 could be largely attributed to the downward pressure exerted by the economic outlook.

But continued inflows of foreign capital and a more positive forecast for the market have helped boost the share prices of baijiu companies lately.

"The baijiu industry will witness an accelerated upgrade this year. Companies will invest more to transform and their performance will differ sharply," he said.