* Kweichow Moutai H1 net profit down 0.25 pct
* First H1 profit drop ever for liquor maker
* Company set for weakest 2014, bounce in 2015 - analysts
* Investors help drive shares up 36 pct this year
(Adds Moutai earnings, Pernod Ricard China sales)
By Adam Jourdan
SHANGHAI, Aug 28 Chinese premium liquor maker
Kweichow Moutai Co Ltd suffered its first ever drop
in first-half profit, but investors are keeping faith with a
company that is showing rival brands a way to survive Beijing's
crackdown on ostentatious spending.
Moutai said late on Thursday that net profit for the first
half of the year edged down 0.25 percent to 7.23 billion yuan
($1.18 billion) from 7.25 billion yuan a year earlier.
The firm blamed the fall on oversupply in the sector
combined with a complex and changing industry environment.
Its fiery baijiu liquor, which is distilled from sorghum
grain and outsells vodka worldwide, was the tipple of choice for
China's elite, but Beijing banned it from official banquets in
2012. At over $300 a bottle, it was deemed too opulent for state
Helping limit the damage to its business, Moutai has been
cutting prices and its online sales and distribution deals have
attracted a wider range of consumers, reducing its reliance on
dwindling government spending.
Those moves have helped drive the company's shares in
Shanghai up 35 percent this year, even as the benchmark CSI300
Index remained flat. The results were released after
the close of share trading in Shanghai on Thursday.
Moutai offers a potential lesson for premium product makers
in China, from global No.1 luxury group LVMH Moet Hennessy Louis
Vuitton SA to cognac maker Remy Cointreau SA
, who have also seen their Chinese sales drop.
World No. 2 spirit maker Pernod Ricard SA said on
Thursday that annual sales in China had fallen 23 percent.
"Like Moutai, I wouldn't be surprised if other mass luxury
brands look at new ways to move their products in China," said
Ben Cavender, principal at China Market Research Group.
"We're at a stage now where brands are trying to hook in the
next generation of consumers, who are very tech-savvy and are
used to buying things online."
Moutai narrowly avoided its weakest ever profit growth last
year and profit for 2014 is expected to rise 5.4 percent, its
slowest rate ever, according to 18 analyst polled by Reuters.
Its first-half revenues rose 1.4 percent to 14.3 billion
yuan, also the slowest growth for the period on record.
Moutai's main rival Wuliangye Yibin Co Ltd,
which saw its first-half net profit fall 31 percent, is set to
see profits shrink this year after recording its first annual
fall in nearly a decade in 2013.
Annual worldwide sales of baijiu are 1.3 billion gallons,
greater than those of vodka, at 925 million and whisky in third
place at 766 million, according to journal Drinks International.
To survive and thrive below the radar of officialdom, the
former icon of opulence for China's generals and the envy of
rivals for its eye-watering profits has pushed more sales
online, halved its prices and boosted tie-ups with discount
This has made the brand more affordable to the average
buyer. The cost of Moutai's core product, Feitian 53°, dropped
from around 2,200 yuan (US$358) in 2012 to around 950 yuan now.
These moves were a major departure for a company once fined
for illegally protecting its high prices. But the shift has
convinced 17 of 19 analysts polled by Reuters to recommend the
stock a "buy" or "strong buy". None rated it a "sell".
"The government crackdown on public spending targeted
officials using public funds to treat guests. It doesn't mean as
an individual consumer I can't still buy Moutai," said a
Zhejiang-based government official, who asked not to be named as
he is not permitted to speak to the press.
Premium baijiu makers like Moutai face not only the
challenge of surviving the anti-luxury drive, but still contend
with consumers not entirely won over by the drink's pungent
taste and high alcohol level.
"Before Moutai was just too expensive. Now the price is
okay, but I still won't buy much," said Zhang Hong, 47, a
partner at a travel agency in the city of Wenzhou. "The truth is
I just don't like the taste."
Bar owners like Simon Dang, co-founder of Capital Spirits in
Beijing, are playing host to baijiu producers and distributors
eager to learn how to target younger drinkers.
"It's going to take some time to change the perception of
baijiu, but we're seeing that a relaxed bar setting is becoming
a popular way to enjoy it," he said.
($1 = 6.14 Chinese yuan)
(Additional reporting by Shanghai newsroom; editing by Tom