they have indeed invested a lot last 4Q
and indeed on their cashflow it reflects them buying PPE and paying a deposit on PPE
if that PPE investment generates higher net profit, I think its a good buy. I will be looking at their next 2 quarters net profit to see if their PPE did result in increased net profit
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i dont think their lack of dividend is the reason why their shares are down.If not how do we explain the rally during aug 2012 to may 2013? They also did not pay any dividend during that period, but the shares rallied
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There are many reasons why they are down but, I feel it is mainly investors' sentiment towards S-Chips and China stocks in general right now.
Their most recent quarter let down + slow down in the Baijiu industry in general certainly did not help.
Assuming their books are real (book cooking is not unique to S-Chips), they are certainly undervalued right now, with lots of positive free cash flow every quarter to boot.
I see their next financial report as a potential near term catalyst (when their profit margin revert to mean as they cut back on growth capex). The declaration of dividends (they have lots of free cash flow; as they just expanded capacity, it is unlikely that they would declare another large capex spending this year amid the Baijiu Industry slow down), and increase in position of institutional investor (Fidelity) as their mid to long term catalyst.
(recently increased position in this stock)
Leaving aside possible conspiracy, Dukang Distillers is a victim of Government’s curb on ostentatious spending.
After owning the “Dukang” brand, the company aggressively promoted it. ASP of “Dukang” products rose to RMB55.7 per kg in FY13, from RMB52.8 per kg in FY12. Unfortunately, it was RMB45.9 in 1QFY14 on government’s curb.
As a consequence, GPM of "Dukang" products was lower, at 39.8% in 1Q FY14, compared with 44% in FY13 and 41.4% in FY12; and 1QFY14 group profit of RMB30m was less than half of that of 1QFY13.
Note that the government's curb affects a lot of baijiu manufacturers (including Moutai, Diageo's Shui Jing Fang, and ThaiBev's YLQ) and luxury companies (LV, Bentley, etc). I had hoped that the Siwu brand could pick up the tab for Dukang Distillers but it didn't seem so (according to company rep, Siwu so far only holds provincial appeal). I am still long Dukang though
Another thing abt Dukang was the recent sale of 44% stake by the ex-Chairman Gao Feng in Aug 2013. Worst, it was bought over none other by Wang Peng (CEO of Synear) & his friend.
And Wang Peng has bought out the minorities shares of Synear at 18.6 ct with much outcry from them.
Question is, will he do the same to Dukang?
The company has to pin its hope on the lower-price “Dukang” products as they are better known than “Siwu”.
In 1QFY14, 6,107 tonnes of cheaper “Dukang” were sold, some 22% higher than the corresponding period of FY13. Both ASP and GPM declined though.
However, the company needs to increase its production capacity to cater for higher output of cheaper stuff.
(09-01-2014, 11:46 AM)Wildreamz Wrote: [ -> ]There are many reasons why they are down but, I feel it is mainly investors' sentiment towards S-Chips and China stocks in general right now.
Their most recent quarter let down + slow down in the Baijiu industry in general certainly did not help.
Assuming their books are real (book cooking is not unique to S-Chips), they are certainly undervalued right now, with lots of positive free cash flow every quarter to boot.
I see their next financial report as a potential near term catalyst (when their profit margin revert to mean as they cut back on growth capex). The declaration of dividends (they have lots of free cash flow; as they just expanded capacity, it is unlikely that they would declare another large capex spending this year amid the Baijiu Industry slow down), and increase in position of institutional investor (Fidelity) as their mid to long term catalyst.
(recently increased position in this stock)
This is what I gleaned from Dukang's AGM held on 28 Oct 2013:
1) Sales & Earnings Have Peaked
Management has stated that they'd be shifting the product mix from premium baijiu to mid-tier and low-end baijiu due to a slowdown in the premium baijiu market. Management has indicated that sales and margins for the next few quarters would be lower as a result of the change in product mix.
2) Grim Industry Outlook
The baijiu industry is seeing a slowdown in premium baijiu sales, resulting in heightened competition among baijiu producers and lower selling prices. The chairman in the AR has stated that, "We need to preserve enough cash to tide us through the trying times ahead. "
3) Huge Cash Horde of RMB758 million Is Illusory
Management has indicated that Dukang needs about RMB500 million in cash to support working capital needs. Hence excess cash on the balance sheet(cash on the balance sheet that is not utilised in the normal course of business) only amounts to RMB258 million. Given that Dukang is facing an industry down turn, it is unlikely that it would be tapping on the RMB258 million to pay out a dividend.
As usual, I'd be giving out stock tips to those who choose to PM me.
Dukang distillers just completed a change of management. Not sure if the CEO of Synear (just delisted) is capable and have the best interest of shareholders at heart.
(09-01-2014, 03:47 PM)minimax Wrote: [ -> ]This is what I gleaned from Dukang's AGM held on 28 Oct 2013:
1) Sales & Earnings Have Peaked
Management has stated that they'd be shifting the product mix from premium baijiu to mid-tier and low-end baijiu due to a slowdown in the premium baijiu market. Management has indicated that sales and margins for the next few quarters would be lower as a result of the change in product mix.
2) Grim Industry Outlook
The baijiu industry is seeing a slowdown in premium baijiu sales, resulting in heightened competition among baijiu producers and lower selling prices. The chairman in the AR has stated that, "We need to preserve enough cash to tide us through the trying times ahead. "
3) Huge Cash Horde of RMB758 million Is Illusory
Management has indicated that Dukang needs about RMB500 million in cash to support working capital needs. Hence excess cash on the balance sheet(cash on the balance sheet that is not utilised in the normal course of business) only amounts to RMB258 million. Given that Dukang is facing an industry down turn, it is unlikely that it would be tapping on the RMB258 million to pay out a dividend.
As usual, I'd be giving out stock tips to those who choose to PM me.
Hi, thanks for sharing.
Can you shed some light on when will the increased capacity kick in?
Because from the recent report, the output seems the same.