Maotai bubble continues to burst, but Maotai stock hits a new high

The headline to this article (53度飞天茅台狂跌千元 批发商称10天卖不了1瓶) says the 106 proof (53%) Maotai price fell 1000 yuan from it's peak of ¥2300, and a wholesaler went 10 days without selling a single bottle. The reporter can't find ¥1300 bottles though, the cheapest are ¥1450 and up. One Wholesaler said he bought at around ¥1800-1900, if he sold at ¥1400-1500, he would go broke.

The retail stores are ghost towns. The reporter went in one store to find the clerk playing computer games and failing even to say hello. The retailers say they are looking forward to Chinese New Year, which is still 6 months away!

However, while the wholesalers are facing bankruptcy (due to chasing high priced bottles during the bubble), the company is reporting rising profits and the stock recently hit a new high: Moutai sales skyrocket in first half

You can click the Maotai tag below (600519) to see previous articles. I expected Maotai stock to crumble, but by May it was clear that this thesis wasn't panning out.

According to this February 2012 China Daily article, Maotai was planning to raise prices from ¥620 to ¥900 per bottle. This Chinese article from today says Maotai planned on raising prices in April, but has pushed that out to December.

With prices still retailing at ¥1500-plus, Maotai can still see earnings increase if the retail price falls. However, if prices keep sliding, it will eventually cut into their revenue growth.

Earnings were only ¥8.44 per share in 2011, with the price at ¥244, the P/E is about 31. That number is justified if growth rates hold up, but the 2011 earnings are out of line with previous years. It doesn't mean the stock is richly valued, though it is richly valued compared to the Chinese stock market, which is only about 15% above its 2008 low.

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