China liquor giant Kweichow Moutai posts slowest revenue growth in five years

[ZUNYI] Kweichow Moutai said its revenue rose about 10 per cent for 2020, the slowest growth in five years, as the world's most valuable distiller remains cautious in raising prices of its prized liquor to avoid attention from China's regulators.

The sales numbers, based on preliminary calculations reported Thursday, are in line with the company's initial guidance set at the beginning of the year and just below the consensus of 10.6 per cent in a Bloomberg survey of 27 analysts.

The baijiu maker's full-year net income of 45.5 billion yuan (S$9.2 billion) was below an estimate of 46.46 billion yuan.

Moutai remains an investor darling as its status as China's national drink and a closely guarded recipe have kept demand strong, even during the coronavirus pandemic.

Its shares surged 69 per cent in 2020, reaching an all-time high in late December.

The state-owned distiller didn't raise the factory-gate price of the group's core baijiu product Feitian, which has stayed at 969 yuan (S$196) a half-litre for three years.

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The retail price, however, has surged to about 3,000 yuan (S$607) from 2,000 yuan at the beginning of the year as China's growing middle class seeks out scarce bottles.

Moutai has limited ability to lift prices to distributors, as the effect on retail prices may draw attention from regulators, Bloomberg Intelligence analyst Kevin Kim wrote in December.

The company has been targeted by the government, with state-run publication People's Daily criticising the firm in July for its high prices, saying the alcohol is often used in corruption cases.

The company is increasing its proportion of direct sales to gain more control over prices, in response to the regulators' call against distributors hoarding and bidding up the price.

Capacity constraints add another issue contributing to slower revenue growth. The making of baijiu requires a specific location and climate to retain the drink's flavour, limiting the ability to expand production.

The sales growth will accelerate in 2021 as the liquor production volume has been increasing and the direct sales channels are more diversified, according to a Jefferies analyst report in October.

Moutai in 2019 produced about 50,000 tonnes of Moutai liquors, which will take at least five years to be ready for the market, about 45 per cent more than the sales volume in the same year, indicating room for sales growth in the near future.

BLOOMBERG