Kweichow Moutai Co. (600519), the nation’s biggest liquor maker by market value, fell the most in seven years after profit trailed Capital Securities Corp.’s estimate and concern grew that a government crackdown on lavish spending will continue to hurt demand.
Moutai, which produces a fiery white liquor called baijiu, slumped by the 10 percent daily limit to 151.90 yuan as of 10:07 a.m. local time, heading for the steepest drop since May 2006 and the lowest level since 2010. The stock was the biggest drag on the Shanghai Composite Index (SHCOMP), which slipped 0.2 percent.
The company’s first-half net income rose 3.6 percent to 7.25 billion yuan ($1.2 billion), according to a company statement after markets shut on Aug. 30. That trailed Capital Securities’ estimate for 10 percent growth, according to Liu Hui, an analyst at the brokerage.
“First-half earnings were much lower than expectations,” Liu said phone from Shanghai. “With strict controls on government purchases of expensive liquor, they are not going to get a boost in sales for the second half of the year. Earnings will remain weak.”
Demand for Moutai’s high-end baijiu liquor, popular at official banquets and for gift giving, has fallen as Chinese President Xi Jinping has pushed to curb extravagant government spending. Moutai’s shares rose 26 percent in the two years through 2012 before plunging 27 percent this year.
China’s new party leadership pledged in December to reduce lavish receptions and live more frugally. Xihad warned that unless corruption is reduced at all levels of government, social unrest may rise and lead to the party’s demise. Moutai fell to 13th place this year from fifth in 2012 among the top brands picked by Chinese millionaires as gifts for friends and business contacts, according to a survey by Hurun Report Inc.
-- Editors: Allen Wan, Richard Frost
To contact the reporter on this story: Weiyi Lim in Singapore at firstname.lastname@example.org