As new Covid-19 cases decrease, alcohol consumption is sure to increase as people become more comfortable going out in public to socialize. The out-of-home consumption market is expected to show strong growth in the coming years, with alcohol in particular benefitting because bars were some of the places that were shut down the most to slow the spread of the virus.
The People’s Republic of China seems the most lucrative alcoholic beverages market in the world due to the country's large population. The Chinese beverages market is expected to hit almost $315 billion in revenue, growing by a compound annual growth rate of 4.6% during the period between 2021 and 2025, according to Statista.com.
The leading Chinese producer of liquor and wine is Wuliangye Yibin Co Ltd (SZSE:000858, Financial). The company has already experienced solid sales growth in the first half of 2021, recording a 21.6% year-over-year increase in the net profit to $2 billion. Sales were approximately $5.7 billion for the period in question, marking a 19.5% increase.
The company's growth strategy consists of developing sales channels to take advantage of the most profitable market segments, especially spirits, which is yielding excellent results. In fact, the company managed to increase revenues from the sale of its line of liquor beverages by 21.1% year over year to $5.3 billion. The addressable market for this segment will be worth approximately $150.5 billion and accounts for nearly 50% of the total Chinese market of alcoholic drinks in 2021, estimates Statista.
Additionally, the company has robust financial conditions, as the cash on hand and equivalents amount to $11.85 billion while total debt amounts to only $140 million. The current ratio is about 3.4 and the last 12 months of operating activities have generated approximately $4.3 billion.
On the Shenzhen Stock Exchange, the stock price has fallen by 32.33% so far this year to 201.69 Chinese yuan (approximately $31.17) per share at close on Tuesday, Aug. 31. The stock has a market cap equivalent to $121 billion and a 52-week range of $30.82 to $55.20.
The stock seems cheap, as its share price is trading substantially below the 50-Day Moving Average of $33.34 and the 200-Day Moving Average of $42.56. The stock also has a forward dividend yield of 1.25%.
Disclosure: I have no positions in any securities mentioned in this article.
