My Favorite Chinese Stock at a Fair Price
Parodying Charlie Munger
In my last post I did a case study about Christopher Hohn investment strategy. In a nutshell his strategy is to buy quality at a fair price. This got me thinking, what is a stock now that fits that criteria. I came to the conclusion that one of the best ideas at the moment is Kweichow Moutai. Personally, I think Moutai is the best alcohol company on the planet. I will explain my reasoning further on. Furthermore I think Moutai is probably in the top 20 brands of all time.
Business Overview & History
Kweichow Moutai is one of China’s most famous and respected companies. It makes Moutai, a strong Chinese spirit called baijiu, known for its rich flavor and deep cultural roots. Moutai first began during the Qing Dynasty (1644–1911), when northern Chinese distillers brought better brewing methods to the town of Moutai in Guizhou province. Over time, several small distilleries produced the liquor, and during the Chinese Civil War, it was famously enjoyed by the People's Liberation Army.After the war, the government brought all the local distilleries together into one state owned company, now called Kweichow Moutai. The drink soon became a favorite at official state events and was served to important guests and leaders, making it a symbol of national pride.Today, Moutai is the most valuable liquor brand in the world. It is known for being expensive, and impossible to copy due to its special brewing process that depends on the local environment. The company enjoys strong demand, high profit margins, and a loyal customer base. Owning Moutai stock isn’t just an investment in alcohol, it's an investment in a key part of Chinese tradition and identity. Moutai is China and China is Moutai. In the United States you have Coca Cola, in Ireland you have Guinness and in China you have Moutai.
The Numbers
Financials
From FY2015 to FY2024, Moutai has consistently grown revenue, net income, and free cash flow at 20% CAGR. Its free cash flow margin stayed high every year, often exceeding 40%, showing the business converts sales into actual cash with stunning efficiency. Margins stayed remarkably stable, and retained earnings more than tripled over the period. Moutai's consistency is its strength: no boom-and-bust cycles, just steady, disciplined growth. In an industry where many players are cyclical or dependent on promotions and marketing, Moutai's advantage is structural rooted in heritage and unmatched brand power in China’s premium alcohol space. As an investor this is the type of financials I like to see.
Moutai gross margin sits at 91.9%, far above the peer average of 66.7%. Even more impressive is its EBIT margin of 67.3% and FCF margin of 51.4%, both over double the industry average. On returns, Moutai’s ROIC (33.9%) and ROE (38.4%) crush competitors like Diageo (ROIC 12.9%) or Remy Cointreau (ROE 8.9%). And it achieves this with almost no debt (D/E 0.2%). These numbers aren’t just strong they're best in class, making Moutai look more like a luxury monopoly than a beverage company.
Over the last decade, Kweichow Moutai has outperformed nearly every other major global spirits company in terms of growth. While the industry average CAGR was 7.1% for revenue, 7.7% for EBIT, and 7.5% for net income, Moutai posted an extraordinary 18.4%, 18.3%, and 18.8% . This kind of sustained, high margin growth is incredibly rare in consumer staples and speaks to Moutai’s unmatched pricing power, demand, and brand dominance in China. Compared to global peers like Diageo, Brown-Forman, and Campari, Moutai has delivered growth numbers closer to that of a tech company than a liquor producer.
To sum it up. Moutai is a world class company. I personally think it's the best alcohol company in the world. The numbers don't lie, they do better margin wise, return on invested capital wise and growth wise than any other company both in China and internationally. Moutai is the Coca Cola of the Alcohol business. If they were a restaurant they would be Mcdoanlds. I simply think they are the best alcohol company in the world.
Valuation
Looking at this very quick snapshot some may say paying 20.9x next year's net income is too expensive. However if you consider the strength of the business I think its fair. Keep in mind this is a company with +67% EBIT Margin and +33.9% ROIC all this with basically 0 debt.
Looking at the 10 year historical P/E (NTM) Moutai has traded at. Moutai is trading at a 25.8% discount from that number. The current P/E (NTM) is 20.9x and the 10 year historical P/E (NTM) is 28.2x.
Looking at the data above it's clear to see that Moutai trades a decent premium to its competitors and this is for good reasons I have covered before. It makes sense this company would be trading at a premium to its competitors because it's better than its competitors. You would expect a wagyu to be more expensive than a Big Mac for example. However keep in mind that on a historical basis they are trading at a 25% discount to their 10 year average P/E (NTM).
Back of The Envelope Math
Starting with CNY 86.23 billion in net income which is the latest 12 months, we projected earnings to grow at a 13% compound annual rate over the next 10 years which I think is a conservative growth rate. That gets us to around CNY 293 billion in year 10. Assuming the company trades at a P/E of 28.2x at that time which is the 10 year average for Moutai, the terminal market value comes out to CNY 8.26 trillion. We then discounted that future value back to today at a 6% rate (using Joel Greenblatt rule of 6% discount rate), giving us a present value of CNY 4.60 trillion. Dividing by 1.26 billion shares, we get an estimated intrinsic value of about CNY 3,655 per share.
Currently Moutai is trading at 1,565.9 CNY per share so an estimated price of 3,655 would mean a +133.4% upside or +8.85% CAGR return in 10 years. That might not sound too exciting however my estimates are based on more conservative projections.
Qualitative
The other side of the coin when evaluating a company is the qualitative side the part you can’t plug into a spreadsheet. It includes things like brand strength, customer loyalty, and competitive moats. That’s why the partnership between Buffett and Munger worked so well. Buffett focused I think more on the numbers and quantitative side while Munger brought in the judgment and insight that gave them a qualitative edge. On the topic of Charlie Munger, in the book Poor Charlie's Almanack (which is my favorite book) Munger gives a stock pitch on Coca Cola. The pitch is only a couple pages long however I think it's the best stock pitch I have ever read. He goes on about the importance of trade marks and the use of pavlov conditioning and so on. Below I have tried to parody the stock pitch by changing it from Coca Cola to Moutai. The Coca Cola pitch Munger does is at least 3,000 words. However since I'm writing a substack article and not a book I'll try my best to keep it short and simple.
Trademark: Moutai is a type of baijiu with a nationally protected designation of origin, meaning it can only be produced in the town of Maotai in Guizhou province. Similar to how only sparkling wine from the Champagne region of France can be labeled as Champagne. This protection is legally enforced by the Chinese government and ensures that only spirits distilled using the traditional techniques, water, and climate of the Maotai region can carry the name
Reciprocity: In Chinese culture, relationships are everything. Gifting someone a bottle and you’re not just giving alcohol you’re giving prestige, recognition, even a small piece of national pride. And once you give, the other party often feels obligated to give back a meeting, a favor, a contract. That’s reciprocity in action. It’s not a transactional “I owe you,” it’s a culturally embedded loop of obligation. Westerners underestimate this, thinking of gifting as marketing fluff. But in China, Moutai is a serious tool in serious negotiations. You wouldn’t walk into a high level meeting with a 12 pack of beer. You bring Moutai.
Social Proof: In a hierarchical society like China, people look to those above them for cues. What to wear, what to drive, what to drink. When they see party officials, business leaders, generals, and even foreign dignitaries raising glasses of Moutai at banquets, it signals not just taste, it signals correctness.Moutai has had decades to entrench this behavior. From Nixon’s 1972 toast, it’s never just been a bottle on the table.
Authority: Authority is persuasion on autopilot. Moutai has long been the drink of choice at state banquets, diplomatic functions, and high stakes business deals. For generations of Chinese officials and business leaders, its presence has signaled not just celebration, but legitimacy, success, and national pride. Much like how a uniform or government seal short circuits our skepticism, Moutai carries the same psychological weight. It doesn’t need to ask for respect it commands it. It was reportedly Mao Zedong’s drink of choice after major victories, and today it still flows at tables where power gathers. In China, authority often drinks from a Moutai bottle.
Risks
Well you might be thinking, how does Trump's Tariffs affect Moutai? Well short answer it doesn't really, this is due to over 95% of the sales Moutai does is in China. The effect of the tariffs I think would be minimal. In regards to Trump's Tariffs effect on the Chinese consumer ? I don't know the answer. But what I do know is that the rich will keep on spending like nothing is happening. People who buy Hermes handbags for their wives don’t really get affected I think. Furthermore Moutai has extreme pricing power. They command the best profit margins in the alcohol space from my research. However keep in mind i'm not an economist but that's what I think.
For those who are scared to venture into China I think those concerns are valid, however Moutai is probably the safest bet in China in my opinion. For instance, for companies like Tencent or Alibaba, tech changes quickly and in 50 years I have no idea where they will be. Same with BYD which is another great company. Great company, love their cars and would probably invest if the stock was cut in half tomorrow. However, in 50 years I have no idea where BYD will be. Even General Motors that used to be a titan in the United states had to be bailed out. However in regards to Moutai, i think in 50 years i can project what the company may look like. In 50 years people in China will continue to be drinking Moutai and it will still be seen at trade deals and important business tables. I personally think Moutai has a very strong moat very similar to Coca Cola. A moat that can stand multi centuries because of its mindshare in China and the simplicity of the product that can't be recreated anywhere else. Unless China gets hit with a nuclear bomb and the world's currency becomes sea-sales I don’t think Moutai is going away. I also want to repeat what I wrote earlier that I think Moutai is the best alcohol company in the world.
Summing It Up
All things considered, I believe Moutai is the best alcohol company in the world trading at a fair price and protected by a moat that could last for centuries.
‘‘ Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now. Over time, you will find only a few companies that meet these standards so when you see one that qualifies, you should buy a meaningful amount of stock. You must also resist the temptation to stray from your guidelines’’- Warren Buffett annual letter to shareholders 1996
Disclaimer: The information provided in this article is for educational and informational purposes only. It does not constitute financial advice, investment recommendations, or an offer to buy or sell any securities. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions. The author may hold positions in the companies mentioned, but the opinions expressed are their own and are subject to change without notice. Investing involves risk, and past performance is not indicative of future results.
:)