Liquor industry faces challenges in wake of scandal, ban

Updated: 2013-02-08 10:48

By Huang Tiantian (China Daily)

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Liquor industry faces challenges in wake of scandal, ban

An aisle of Chinese liquor at a supermarket in Xuchang, Henan province. Prices of Chinese liquor have dropped as demand from government departments dries up before Spring Festival. [Photo/China Daily]

Liquor companies' share prices and sales have slumped sharply before the Lunar New Year, pressured by a plasticizer contamination scandal and a ban on government and military banquets that serve alcohol.

The share price of liquor companies usually rises sharply before the Lunar New Year buoyed by sales increase.

However, the performance of these companies may fall below investors' expectation this year, analysts said.

Since Nov 19, share price of the Shenzhen-listed Jiugui Liquor Co, a large liquor manufacturer in Hunan province, has plunged about 66 percent after business news website reported the company's products were found to have excessive plasticizers.

Its share price closed at 29.08 yuan ($4.66) on Thursday, down from 47.56 yuan on Nov 16.

In the same time frame, the share price of Kweichow Moutai Co Ltd, China's leading liquor maker, decreased 21 percent to 185.17 yuan on Thursday, while the share price of Wuliangye Yibin Co Ltd dropped by 19.3 percent.

Liu Jiawei, chief analyst of food and beverages at Dong Xing Securities, said the outlook for the entire liquor industry is not good, and the share prices of high-end liquor companies, including Moutai and Wuliangye, will continue to decrease.

Liu said long-term investors should be prepared to move out of liquor stocks.

In addition, demand for liquor has fallen sharply after government calls for cracking down on extravagance in government departments and State-owned institutions and enterprises.

The sales of high-end liquor brands plummeted on the news. Moutai and Wuliangye's sales decreased about 50 percent in 2012 compare with 2011, the media reported recently.

The price for a standard half-liter bottle of Feitian Moutai, which has an alcohol content of 53 percent, has dropped from 1,900 yuan to 1,400 yuan from the end of 2011 to the end of 2012, while the price of a bottle of 52 percent alcohol Wuliangye in the best packaging dropped from 1,100 yuan to 850 yuan in the same period, the report said.

Zhu Chengliang, an analyst of Northeast Securities Co Ltd, said in a research report that liquor companies have to adapt themselves to the new situation, and this adjustment will take some time. The first half of 2013 will be difficult for liquor companies, Zhu said.

Li Yun, an analyst of Guodu Securities, said stock prices in the liquor sector will continue to decrease. After the Lunar New Year, the price of high-end liquor brands will drop as well, Li added.

On Thursday, the Shanghai Composite Index dropped 0.63 percent to 2,419.18 points, ending eight straight days of gains from Jan 28.

The Shenzhen Component Index dropped 0.18 percent and the Hang Seng Chinese Enterprises Index for those firms listed in Hong Kong fell 1.27 percent.