Bottoms up: China booze makers defy economic gloom

Thu Oct 25, 2012 11:11pm EDT
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By Melanie Lee

SHANGHAI (Reuters) - China's high-end liquor companies raised prices in a faltering economy and faced a Beijing clampdown on drinking their pricey booze at banquets, yet still managed to turn in strong quarterly profits.

Kweichow Moutai Co Ltd, China's leading maker of the potent and expensive baijiu liquor, reported a doubling of its third-quarter net income to 3.4 billion yuan ($544.72 million) on Thursday, beating analysts forecasts of 2.4 billion yuan, according to Thomson Reuters I/B/E/S.

Its biggest rival, Wuliangye Yibin Co Ltd, said last week it expects a nearly 90 percent rise in its third-quarter profit on higher production and robust sales. Wuliangye Yibin will report its results next week.

Repeating that success in the current period may be tough.

Analysts said a government clampdown on using public funds to buy luxury items such as baijiu, announced in March, had a limited impact on high-end liquor firms because of private sector demand and stronger sales of lower-end brands.

But Zhao Yong, an analyst with Haitong Securities, cautioned that the impact of the crackdown on luxury gift-giving could be felt in the coming months.

"There may not be such a big impact now as most of the gifting occurred from the budget set in the first half of the year. However, moving forward there may be a bigger impact seen," he said.

Kweichow Moutai said on September 4 it had raised prices on some of its products by as much as 30 percent from the start of that month. The hike came late into the third-quarter period, so it may have a greater impact on the current quarter's sales.   Continued...

An employee works along an assembly line at a liquor factory in Taiyuan, Shanxi province August 10, 2012. REUTERS/Stringer