Wednesday, November 19, 2014


Baiju is the most popular drink in China, and Moutai is the highest premium brand of Baiju.  It has a long, storied history.  Each bottle takes 5 years to produce.  It is only produced at a specific location (p6).

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:
There are many brands of baiju in China.  Diageo, LVMH and Pernod have acquired their own brands.

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 numbers look excellent.  I didn't read the financial statements myself, but got the numbers from Morningstar, who, surprisingly, cover it (subscription needed).  Profit margins (after taxes) have been over 44% for the past 5 years.  Gross margins are over ninety percent.  Net cash has risen steadily over the past five years - I estimate it to be around 15% of the market cap, at 165yuan/share.  Perhaps they are also in the business of printing money.

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.

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