Moutai 2015 Earnings Miss Estimates as Price Cuts Hit Limit

  • Liquor-maker's net income for 2015 rose 1% to $2.4 billion
  • Payments due to Moutai almost quintupled to $1.3 billion

Luxury liquor-maker Kweichow Moutai Co. reported 2015 profit that fell short of analysts’ expectations as the price cuts it used to prop up demand for its baijiu, a white spirit popular in China, reached limits amid the government’s austerity campaign.

Moutai’s net income rose 1 percent to 15.5 billion yuan ($2.4 billion), according to a statement to the Shanghai Stock Exchange late on Wednesday, below the average estimate of 16.4 billion yuan from 19 analysts compiled by Bloomberg.

Moutai shares rose 0.6 percent to 236.31 yuan in Shanghai trading. The shares have risen 8.3 percent so far this year, compared with the 16 percent drop in the Shanghai Composite Index.

Sales rose 3.44 percent to 32.7 billion yuan, compared with the average estimate of 34.2 billion yuan by 15 analysts for the company, based in the southwestern city of Guizhou.

The distiller, whose sorghum-based spirit of the same name is the toast of choice for Chinese leaders, has been cutting prices amid a corruption crackdown that saw revenue growth slow to 4.3 percent in 2014. That’s down from a record 58.4 percent growth in 2011, a year before China president Xi Jinping introduced an anti-extravagance campaign.

Payments due to Moutai, or accounts and notes receivables, almost quintupled to 8.6 billion yuan as of end-2015 from a year earlier, the company reported. Moutai’s distributors are taking longer to pay for their orders as fewer officials consume the premium liquor.

“From 2013 to 2015, sales were sustained on the strength of the Moutai brand and the speed with which they cut prices and converted customers,”  Ping An Securities analysts led by Wen Xian wrote in a March 11 report. “But now, Moutai wholesale prices are almost the same as factory prices, with no further space to fall.”

That strategy has reached its limit and it does not look likely that demand from government officials will return, Wen wrote. Moutai now goes for about 820 yuan a bottle wholesale, down from 1700 yuan in 2011, according to the Shenzhen-based analyst.

The baijiu industry is projected to grow 5 percent in 2016 and 9 percent in 2017, the fastest among alcohol beverages in China, according to figures from Macquarie Capital Securities.

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