Kweichow Moutai 2010 profit rises 17%, trailing analyst estimate

By Helen Yuan and Michael Wei

Kweichow Moutai Co., China’s biggest liquor maker by market value, said profit in 2010 gained 17 percent, trailing analyst estimates, as rising competition and higher raw material costs squeezed its profit margin.

Net income climbed to 5.05 billion yuan ($769 million) from 4.31 billion yuan a year earlier, the Guizhou province-based company said in a filing to Shanghai’s stock exchange today. The figure trailed the average 5.2 billion yuan of 11 analyst estimates compiled by Bloomberg. Sales rose 20 percent to 11.6 billion yuan, based on Chinese accounting standards.

Moutai, named after a sorghum-based liquor that’s been used to toast dignitaries including former U.K. Prime Minister Margaret Thatcher, has raised prices by an average 20 percent from Jan. 1 amid increased raw-material costs and demand. Operating margins for liquor were cut by 3.02 percentage points to 77.42 percent in 2010, according to today’s statement.

“Chinese liquor is facing increasing challenge from foreign brands and imported wine,” the company said in the statement. Rising raw material costs and fake products are among other challenges, Moutai said.

Moutai rose 1.1 percent to 191.15 yuan in Shanghai trading on March 18. The stock has gained 3.9 percent so far this year, compared with a 3.5 percent increase by the benchmark Shanghai Composite Index.

Parent China Kweichow Moutai Distillery Co. will spend more than 1 billion yuan to expand annual production capacity to 40,000 tons by 2015 from the current 20,000 tons to cater to rising demand, Chairman Ji Keliang said in Beijing on March 5. He declined to say if the company will increase prices further this year.

‘Increased Capacity’
Moutai aims to boost sales to 26 billion yuan by 2015, and will spend about 2.5 billion yuan this year for expansion, today’s statement said.

“Moutai’s profit rise is mainly driven by increased capacity,” Zhang Lu, an analyst with CSC Securities HK Ltd. in Shanghai said before the statement. “They don’t have any worry about selling the liquors,” said Zhang, who has a “buy” rating on the stock.

Moutai, dubbed as “The Alcohol of the Nation” in China, was credited with helping cure wounded communist party soldiers during the two-year Long March that began in 1934 when the Red Army fled Chiang Kai-shek’s Nationalist forces across 3,000 miles of mountains, jungles and deserts.

The company, which has been turning wheat and sorghum into 106-proof spirits since 1862, went public in 2001. It has registered capital of 185 million yuan, according to its website.