In China there was a Baiju Bubble, which popped in 2012:
I don't know if Kweichow Moutai itself benefited from the previous high prices, or if their distributors did.
The bubble was pricked by Beijing's anti-corruption drive. Moutai had previously focused on selling to government officials (or those who were hosting them). They are now trying to switch to the consumer market, by:
- Cutting prices. From 2200 yuan in 2012 to 950 yuan now.
- Loosening criteria for distributors. And setting up their own stores.
The risks are:
- Young people in China may not take to baiju, being used to foreign brands of whiskey or vodka in nightspots instead.
- This is purely a domestic China play. Its unlikely that foreigners will take to it - "tastes like paint thinner and feels like a lobotomy".
- As a China Company, its numbers may be fake.
- China food quality: the company had a contamination scandal in 2012,over plasticizers in the bottles. They did not handle it well.
- How are they managing to lower prices, increase volume and move into the consumer market without affecting quality?
The PE based on the last 4 quarters is just under 13 (@ 165 yuan/share). Even though I prefer Diageo, which has a larger variety of products and is more international, Moutai looks better at this valuation.
Bought 900 shares at CNY 163.3 on 17th Nov 2014. Total cost was SGD 31594. Held in my DBS Vickers acct.