In the beginning of August Kweichow Moutai reported its second quarter/first half financial results. Its revenues grew by 17 percent year-on-year and the net profit grew by 16 percent. Both indicators development is largely consistent with the company´s guidance and market expectations.

The market appreciated such development with the increase of the Kweichow Moutai stock price. Its stocks were sent higher by about 3.5 percent during the last five days. On the other hand, Kweichow Moutai stocks are facing the decreasing demand for liquors due to the concerns about the development of the entire Chinese economy.

And the fact is that Kweichow Moutai stocks are being traded almost 15 percent below their value in the beginning of this year. On the year-on-year basis the stocks are now more than 21 percent lower, and it seems that there is no reason to expect any substantial increase in the near future.

There have been released some recommendations about the Kweichow Moutai stock. The analysts of the Swiss bank UBS have recently downgraded the Kweichow Moutai stock as well as the stocks of other Chines major liquor producers. There are expectations of destocking strategies would create a supply overhang at a time when consumer demand is wanning in the world´s largest spirits market.

So, UBS lowered its recommendation on Kweichow Moutai from buy to neutral. It also cut ratings on other Chinese liquor producers, especially on Wuliangye Yibin, Luzhou Laojiao and Jiangsu Yanghe Distillery by a notch to neutral.

At the same time, we have to say that UBS stands out among other major investment banks. For example, Citigroup has maintained a buy recommendation on the Kweichow Moutai stock since 2016, the same as HSBC, which has kept its buy recommendation since 2018.

Oleh Shalenyk

Financial Analyst of Alpho