The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Chan Ka Sing

HONG KONG, Jan 2 (Reuters Breakingviews) - Kweichow Moutai–Li Ning, or KMLN, may not have the same ring as Louis Vuitton Moët Hennessy, but it could be China’s next national consumer champion. Moutai 600519.SS, the world’s largest distiller, wants to appeal to young shoppers. Marketing gimmicks with brands from Dove chocolates to Luckin Coffee have so far failed to gain traction. A bold swoop on the iconic but struggling sportswear retailer, Li Ning 2331.HK, might be the key ingredient to create China’s answer to LVMH LVMH.PA.

Moutai specialises in a sorghum-based spirit, often referred to as firewater due to its 50%-plus alcohol by volume $(ABV.AU)$. At roughly $200 a bottle, its top-shelf flagship tipple, “Flying Fairy”, has long been a hallmark of the country’s booze-soaked official banquets. In 2021, the Shenzhen-listed company’s market capitalisation hit a peak of over $450 billion, surpassing LVMH’s. But a crackdown on corruption and a slowing economy have been sobering for sales; Moutai’s stock has nearly halved since then.

Tapping a new generation of customers, then, is a wise move for the state-backed firm. In 2024, it rolled out limited edition booze-filled chocolates, spirit-infused lattes and even ice cream. But net profit growth is forecast to slow to 16% in 2025, down from a 20% growth rate in the past two years, per LSEG.

A more potent move would be an acquisition of beloved gymnast Li Ning’s eponymous sporting goods retailer. The company has benefited from a trend known as “guochao”, literally meaning “national tide”, that signifies Chinese preference for domestic brands over Nike NKE.N and Adidas ADSGn.DE. But as with Moutai, a consumption slump in the world’s second-largest economy has hit sales.

Hong Kong-listed Li Ning’s market value was just $5 billion as of the end of November, down 85% from its 2021 peak. The stock trades on roughly 11 times forecast next 12 months’ earnings, compared to 15 times at main rival Anta Sports 2020.HK. Its beaten-down valuation has prompted Chair Li Ning to consider taking the company private, Reuters reported, citing sources. Nonetheless, a takeover by a cash-rich state giant may be easier to pull off, given the founder only owns a 10.7% stake in Li Ning.

A Moutai–Li Ning union could reinvigorate the “guochao” trend – after all, many Chinese are fiercely proud of these two brands. Assume a 30% takeover premium for Li Ning, and a deal could be worth around $5 billion including debt. That’s manageable for Moutai: as of September, the group had little debt and $25 billion of cash and cash equivalents – the largest pile among listed A-share companies.

Against China’s gloomy economic backdrop, Moutai can still raise a glass to this tantalising opportunity.

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This is a Reuters Breakingviews prediction for 2025. To read more of our predictions, click here.

(Editing by Robyn Mak and Ujjaini Dutta)

((For previous columns by the author, Reuters customers can click on CHAN/ KaSing.Chan@thomsonreuters.com))