A whole lot of ganbei drives Moutai’s market value to half the GDP of its home province

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China’s palate for baijiu, a fiery liquor that was Mao Zedong’s favourite tipple, has pushed the share price of its most famous distiller Kweichow Moutai to become China’s most expensive stock, in the process valuing the company at more than half of the economy of its home province of Guizhou.

Moutai’s shares touched a record intraday high of 500.10 yuan each on August 14, and recently changed hands at 491.27 yuan in Shanghai, giving the company based in the township of Maotai 617 billion yuan (US$93.7 billion) in market capitalisation. In the first six months of 2017, Moutai’s market value surpassed Guizhou’s gross domestic product.

“In the history of the A-share market, it is not common to see such a significant increase for a single company or a single sector,” said Zhou Sha, an analyst from Sinolink Securities. “For this phenomenon to emerge there have to be two preconditions: market expectations that don’t match the company’s actual performance and a significant change of the fundamentals of the sector the firm is in.”

Distilled from fermented sorghum, a bottle of maotai — the baijiu must be distilled in the town to use that name — from the distillery starts from 1,799 yuan, and could go up to 8 million yuan at auctions. First produced during the Qing Dynasty, maotai’s fortunes had been closely tied to the Communist Party, owing its success to the party’s founding elders. Mao used to drink it, and Zhou Enlai toasted Richard Nixon with maotai during the American president’s historic visit to China in 1972.

It continues to be served during state banquets at the Great Hall of the People in the Chinese capital, and had been the staple for official gift giving for decades. In recent years, the price of baijiu in general, and maotai in particular, has taken a hit from President Xi Jinping’s austerity drive among party cadres.

Moutai’s market value fell by half in 2013, a year after Xi’s rise to China’s presidency heralded in a crackdown on graft, and a campaign for austerity among party cadres and senior government staff. Tens of thousands of senior public servants and military officers fell from grace, often with public pictures of their symbols of ill-gotten wealth — including cases of Maotai — shown on state media.

Even Guizhou’s government, a controlling stakeholder in the publicly traded distillery, hadn’t been spared from banning its own product.

All liquor products, including those brought by individuals, would be banned from official functions throughout the province starting on September 1, according to an announcement last month by the Guizhou government.

Still, Maotai appears to have weathered the crackdown, with the price of baijiu in general rising in recent months amid hopes that the austerity drive may have run its course, with the upcoming Communist Party leadership selections this autumn.

Maotai has also diversified its customers, aiming it at ordinary citizens with a palate for baijiu, even as its sales as a form of gift giving has declined, said Sinolink’s Zhou.

The premium of Maotai’s brand in particular helped the company, doubling the price of its cheapest distillate to 1,799 yuan in less than a year. That’s boosted Maotai’s interim profit by 28 per cent to 11.25 billion yuan, while revenue jumped 40 per cent to 25.5 billion yuan during the first six months.

Other baijiu distillers have also fared well. Sichuan Swellfun, which operates a distillery that traces its roots to the end of the Mongols’ 14th century rule over China, reported a 26 per cent increase in interim profit, while Jiugui Liquor’s net profit more than doubled in the first half.

“Chinese people’s rising nationalism has also helped with the situation,” said Louis Tse Ming-kwong, director of VC Brokerage, “Now they have shifted their consuming focus to domestic brands.”

With additional reporting by Zhang Shidong in Shanghai.

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