OUT of over 3,500 stocks listed in Shanghai and Shenzhen, this fund manager is only interested in one: Kweichow Moutai Co.

Michael Wan, chief investment officer at China Universal Asset Management (Hong Kong), said investors can’t ignore the well- known maker of baijiu liquor, which has already rallied more than 50 percent this year — and over 14,000 percent since its 2001 debut in Shanghai.

“I’m still comfortable with its valuation. It is very rare a stock can enjoy a margin of as high as almost 90 percent. You can’t ignore this company’s ability to turn sales into earnings,” said Wan, whose fund has beaten 96 percent of peers in the past five years and more than doubled the MSCI China Index’s gain.

With its soaring returns, Moutai is hardly a rare pick for stock investors.

The Guizhou-based company is the world’s most profitable distiller, maintaining gross margin at around 90 percent for at least a decade. Wan believes the liquor maker could improve profitability further and says its business model is “irreplaceable.”

“We think Moutai’s selling prices still have upside. It may not lift prices very soon, but in the longer run, the upside could be very big,” Wan said. “Demand for high-end liquor products will keep growing as the pool of wealthy individuals expands in China. It’s an ongoing consumption upgrade story.”

While Wan’s mandate allows him to invest up to 30 percent of his fund in non-Hong Kong stocks, on the mainland he still only has eyes for Moutai, which hit a record high 951.90 yuan (US$141.98) Wednesday.

Trading at about 26 times forward earnings, Moutai is one of 2019’s best-performing large caps in China. To Wan, the company’s high valuation is also justified by a strong balance sheet that provides solid free cash flows. (SD-Agencies)