SHANGHAI – Kweichow Moutai jumped the most since late 2021 after the Chinese liquor giant said it would boost prices of its signature alcoholic drinks for the first time in six years.

Shares surged as much as 9.8 per cent after the state-owned distiller said late on Tuesday that it would increase factory-gate prices by 20 per cent for a number of its flagship baijiu drinks.

The high alcohol content sorghum-based liquor is the choice for banquets among government officials and businessmen in the country.

The decision to raise ex-factory prices came after repeated calls to do so from investors, and exceeds the average 18 per cent hike the company announced across its product line six years ago.

Recommended retail prices for its liquor range will remain the same, the company said, adding that the move will have “some impact” on its earnings.

The announcement is “a positive signal and a potential change to the narrative on the Moutai investment story”, Goldman Sachs Group analysts including Ms Leaf Liu wrote in a note.

The move should ease market concerns on the commercialisation orientation of Moutai, and temper concerns on its growth driver in 2024, they said.

Kweichow Moutai shares were 6 per cent higher at 1,786.08 yuan as at 2.30pm Singapore time.

Other distillers also rallied on the news, with Wuliangye Yibin rising 3.4 per cent, and Luzhou Laojiao advancing 3.7 per cent. The broader CSI 300 Index was little changed.

Analysts called the price increases timely, given that weak consumer prices in China mean inflation is unlikely to be a concern, even if the move triggers other liquor makers and consumer firms to follow suit. 

“It really makes sense at this point in time, there’s no risk of bringing Moutai’s retail prices to sky-high levels right now,” said Mr Jiang Liangqing, managing director at Zhuhai Greenbamboo Private Fund Management.

Moutai, the largest stock by market capitalisation in Shanghai and Shenzhen, has long been a bellwether, and improving sentiment towards the stock will also help invigorate broader capital markets, he said. 

Profit boost

Zheshang Securities analysts including Yang Ji expect the price increases to boost Kweichow Moutai’s earnings by 6.2 billion yuan (S$1.18 billion) a year and net profits by 4.5 billion yuan. 

Goldman Sachs estimates the hikes will add an extra 3.5 billion yuan to the company’s profits in 2024.

Moutai boosted the proportion of its sales directly to consumers to 45 per cent in the third quarter, enhancing its capability to control prices.

The increase has been helped by the spread of its i-Moutai app. The wide gap between the company’s ex-factory prices and recommended retail prices has been seen as creating opportunities for corruption. 

Investor favourite

While the most valuable Chinese spirits maker has long been a favorite of investors, it has been rare for Moutai to raise prices considering China’s regulators and state media have pressed it to stabilise market prices and refrain from making excessive profits. 

The unexpected hike may mark a symbolic shift in the authorities’ perception, Zhuhai Greenbamboo’s Mr Jiang said.

“Price hikes for Moutai have been somewhat political, and the authorities have tried to avoid sky-high prices for premium liquor,” he said. “The fact that this is now allowed could show determination and tolerance for more market-oriented changes.” BLOOMBERG