Things are looking up for China’s liquor makers, signaling a recovery in consumer spending that bodes well for the economy.
(Bloomberg) — Things are looking up for China’s liquor makers, signaling a recovery in consumer spending that bodes well for the economy.
Analysts expect the nation’s top spirits makers to report upbeat first-quarter earnings after industry bellwether Kweichow Moutai Co. posted better-than-expected preliminary results last week. Wuliangye Yibin Co. is likely to unveil a 12.5% gain in net income while Luzhou Laojiao Co. is forecast to post a 14.5% increase.
Alcohol manufacturers are a vital segment of China’s economy as sales of their baijiu or hard liquor serves as a barometer of spending patterns. An upturn in earnings may suggest that consumer spending will gain traction, and help underpin a rebound in the benchmark CSI 300 Index.
“The first-quarter earnings for the baijiu sector could remain strong on the back of robust consumer demand,” said Ada Li, an analyst at Bloomberg Intelligence. “The sector could deliver strong earnings for the full year.”
Optimists say that encouraging China consumption data released last week show that spending is on the mend. Sales of liquor and tobacco climbed 6.8% in the first quarter from a year earlier, outpacing the 5.8% increase in overall retail sales.
Kweichow Moutai’s shares rallied as much as 1.8% in Shanghai on Tuesday, the most in a week, ahead of the release of first-quarter results after trading hours.
“Kweichow Moutai is one of my top picks among all the A-shares,” said Dickie Wong, executive director of research at Kingston Securities, citing the company’s rosy outlook amid a pickup in the baijiu sector from investment and consumption demand.
A raft of strong earnings will help to ease lingering doubts about the strength of consumer spending. A gauge of China’s consumer staple stocks lost momentum in recent days after data on inflation and household deposits suggested that consumers are wary of parting with their money.
The shares of some baijiu makers have reflected these concerns. Kweichow Moutai’s stock slumped more than 4% in the week ended April 14 after the consumer-related data were released. Luzhou Laojiao and Wuliangye Yibin both slid over 7% each that week.
Still, some analysts say the weakness is temporary and offers investors a chance to boost their positions. It helps that valuations are attractive, with Kweichow Moutai trading at 28 times forward earnings, the cheapest level since late November.
–With assistance from John Cheng, Yvonne Man and David Ingles.
(Updates with share move in sixth paragraph and analyst comments in seventh paragraph)
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