Dukang Distillers Holdings

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#11
Sgd
Your speculation on extinguishing "Siwu" brand and turning its facilities for the production of "Dukang" wines may not be likely for two reasons:
(1) Market overlap between "Siwu" and "Dukang" may not be much as "Dukang" serves mid-to-high end market, whereas "Siwu" caters to mid-to-mass market; and
(2) "Siwu" wines are produced in Zhoukou, whereas "Dukang" wines are produced in Luoyang. According to the company, water from a certain stream in Luoyang contains chemicals that provide "Dukang" wines special characteristics. It seems unlikely for "Dukang" wines to be produced in Zhoukou.

In launching an IPO to raise funds to acquire "Siwu" in 2008, the company described "Siwu" as a good brand with strong growth potential.
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#12
So I was looking at the figures and I'm thinking from the 3rd quarter it looks possible that the Dukang Management may give between half to 1 cent (singapore) dividend for the full year. Assuming if they really decided to pay a dividend.

to be able to afford to give 1 cent dividend they need close to 8million (s$) on the current float of 798,289,318 shares

from the Q3 report of 62.4 mil (rmb) so assuming annualized is around 20mil (rmb) every Q
so we guessing full year profit to come in around 70-80mil (rmb) at 5:1 is about 16mil (s$)

So 1 cent div (s$) is 8mil or 50% of their assumed profit and 0.005 div will be 25%

so what do you guys think? Big Grin

http://info.sgx.com/webcoranncatth.nsf/V...D007DB2E8/$file/DKHL-3Q2012-Results.pdf?openelement
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#13
Sgd
You have stated that "from the Q3 report of 62.4 mil (rmb) so assuming annualized is around 20mil (rmb) every Q
so we guessing full year profit to come in around 70-80mil (rmb) at 5:1 is about 16mil (s$)".


I think you have inadvertently taken Q3 profit (RMB62.4m) to be 9-month profit to arrive at a quarterly profit of RMB20m, and annual profit of RMB70-80m.
Dukang's 9-month profit was RMB193m. Full-year profit therefore should exceed RMB200m.
A 1c dividend amounting to RMB40m should be affordable. The company also has around RMB500m net cash arising from full conversion of RMB200m convertible bonds in 2010 and the RMB260m TDR proceeds in 2011.
A 1c dividend therefore should not affect its capacity expansion plan. When the company acquired the two competing "Dukang" wine producers in 2010, it paid RMB187m for their trade marks and RMB413m for the tangible assets. The existing RMB500m net cash and future annual profit of around RMB200m therefore can enable the company to go quite far.

But the company may choose to be conservative and hold back any dividend payment.
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#14
(22-06-2012, 10:41 AM)portuser Wrote: Sgd
You have stated that "from the Q3 report of 62.4 mil (rmb) so assuming annualized is around 20mil (rmb) every Q
so we guessing full year profit to come in around 70-80mil (rmb) at 5:1 is about 16mil (s$)".


I think you have inadvertently taken Q3 profit (RMB62.4m) to be 9-month profit to arrive at a quarterly profit of RMB20m, and annual profit of RMB70-80m.
Dukang's 9-month profit was RMB193m. Full-year profit therefore should exceed RMB200m.
A 1c dividend amounting to RMB40m should be affordable. The company also has around RMB500m net cash arising from full conversion of RMB200m convertible bonds in 2010 and the RMB260m TDR proceeds in 2011.
A 1c dividend therefore should not affect its capacity expansion plan. When the company acquired the two competing "Dukang" wine producers in 2010, it paid RMB187m for their trade marks and RMB413m for the tangible assets. The existing RMB500m net cash and future annual profit of around RMB200m therefore can enable the company to go quite far.

But the company may choose to be conservative and hold back any dividend payment.

You are right, I didn't read the 2nd and 1st quarter carefully and wrongly assumed I stand corrected. Wow in that case this looks even more promising. Shy
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#15
The PER of Dukang is around 6 now with its FY11 profit of RMB168m.
Your anticipated RMB70 - 80m FY12 profit would raise the forward PER to 12, which is very high for a S-chip.
I do not think there is cause for jubilation. Even if FY12 profit exceeds RMB200m to give rise to a PER below 5, investors may still not warm up unless a reasonable dividend is payable and the company explains how its profit growth can be sustained.
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#16
source: Will investors at last drown their sorrows over baijiu? By Keane Hoo, 2012-6-21

THE baijiu sector was one of the few sectors which attracted great investor interest last year on the back of rising demand, limited production capacity, and the emergence of baijiu as an asset class for investment. We have seen how once buoyant sectors corrected after huge gains were made over a short period of time. Investors are now wondering if we will see a repeat of the boom and bust cycle in the Chinese baijiu sector.

The Chinese baijiu sector witnessed a series of price hikes in 2011. Kweichow Moutai raised ex-factory prices by an average 20 percent on January 1 last year, while Wuliangye Yibin hiked prices by 20 percent to 30 percent last September, according to company filings.

The price hikes significantly boosted earnings. Kweichow Moutai posted a 57.6 percent year-on-year rise in 2012 first quarter net profit to 2.97 billion yuan (US$471 million) on a 42.5 percent increase in revenue to 6.02 billion yuan. Wuliangye Yibin recorded a 46.5 percent increase in first quarter earnings to 3.05 billion yuan, while revenue rose 31.8 percent to 8.2 billion yuan.

Shareholders shared in the benefits of the stellar earnings, with Kweichow Moutai announcing on April 11 cash dividends of 39.97 yuan for every 10 shares held, the highest dividend payment in the history of China's A share market. Based on total equity at the end of 2011, the earnings distribution will cost the company up to 4.15 billion yuan.

Other baijiu makers also paid out big dividends. According to CapitalVue data, the dividend payout ratios last year for Jiangsu Yanghe Brewery Joint-Stock, Wuliangye Yibin and Shanxi Xinghuacun Fen Wine Factory were 33.6 percent, 30.8 percent, and 27.7 percent, respectively.

In addition, shareholders benefited from rising stock prices due to the bullish sentiments. At the close of trade on 15 June, shares of Tuopai Liquor, Jiugui Liquor, and Huzhu Barley Wine have respectively risen 108, 93.8, and 90.4 percent year-to-date. Kweichow Moutai was up 31.4 percent, while Wuliangye Yibin chalked up gains of 5.3 percent.

Rising tide

A rising tide lifts all boats. Smaller baijiu producers also reaped the benefits of growing investor interest, raising funds to ease cash flow pressures. According to a Xinhua report in March, Lu Zhou Lao Jiao partnered with China Minsheng Banking Corp to roll out a baijiu-based investment product. The product, which provides investors with annual returns of 4.2 percent, was sold out in half a day and raised 200 million yuan. The success of the securitization partly reflects excessive liquidity in China chasing too few investment targets. Investors could also speculate on baijiu prices following the launch of baijiu trading on the online Jinmajia Equity Platform operated by the Beijing Equity Exchange.

The high profitability has led to foreign distilleries making a beeline to China's baijiu sector. The most recent acquisition was undertaken by Diageo Highlands Holding, which won regulatory approval last year to up its stake in Sichuan Chengdu Quanxing Group from 49 to 53 percent. Quanxing Group controlled Sichuan Swellfun, which owns the baijiu brand Shui Jing Fang. Diageo has since launched Shui Jing Fang in seven countries and at duty-free shops in 40 airports worldwide. In line with regulations, Diageo launched a mandatory tender offer to all shareholders, excluding Quanxing Group, in March.

Double-edged sword

The entry of foreign spirits makers into the Chinese baijiu market is a double-edged sword for local baijiu makers. Although competition will intensify, possibly leading to an erosion of profit margins, the pie may be significantly enlarged if the foreign distilleries manage to successfully introduce baijiu to the uninitiated in international markets.

It will not be easy for foreign distilleries to displace the likes of Moutai and Wuliangye as the preferred tipple of choice in China. According to the 2011 Hurun Report, luxury consumers in China rated Moutai as the preferred baijiu brand. Other than brand loyalty and recognition, one reason for the dominance of Moutai is that baijiu production is located in the town of Maotai, which is acknowledged as having the best environment for baijiu production. Geographical limits thus hamper the ability of foreign distilleries to compete in the high-end segment of the market.

The boom will not be threatened by the entry of foreign players. Instead, the bursting of the baijiu bubble may have been precipitated by the pledge made by Premier Wen Jiabao in March to ban the use of public funds to buy high-end alcohol amid widespread public anger over the misuse of government funds. If strictly enforced, this will deal a huge blow to the baijiu industry, which has been greatly dependent on purchases by government agencies. Following the comments by Wen, prices of some top-end Moutai brands dropped from a peak of 2,000 yuan last year to about 1,400 yuan per bottle, while the wholesale price of Wuliangye dropped from 1,000 yuan per bottle during the peak season to about 750 yuan per bottle.

Slowing economy

The slowing domestic economy is another drag on the sector as the huge expense accounts of corporations are squeezed, directly affecting baijiu demand and increasing inventory levels. The twin impact of lower demand from government agencies and the corporate sector, coupled with the threat posed by counterfeit baijiu, have exacted a toll on baijiu producers. According to a Chengdu Business Daily report on May 25, Lu Zhou Lao Jiao lowered the sales target for distributors in 2012, cutting the target for the high-end Guojiao 1573 by 1,500 tons to 4,500 tons.

The deteriorating industry fundamentals led to the share prices of Lu Zhou Lao Jiao, Jiugui Liquor, and Wuliangye Yibin declining by more than 10 percent in the past month.

Faced with strong headwinds, the domestic baijiu sector will have to go into overdrive and take remedial measures to ensure that the current market is just experiencing a healthy correction, and is not the prelude to a full-blown market crash. Failure to do so could lead to investors drowning their sorrows over baijiu purchased at inflated prices.
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#17
Quote ".....THE baijiu sector was one of the few sectors which attracted great investor interest last year on the back of rising demand,........."

I pulled out the chart of dukang to have a look. The price was 90cents in jan 2011 and fell to 40cents by dec 2011, with a further fall to 25 cents this month. I had learnt that whenever there is "great investor interest", the price is invariably at a top. During that period, investors' emailbox will be flooded with many analyst reports with buy recommendation, overweight allocation and the like. History repeats.

Having said that, the price is now at a trough. That does not mean the price will go up from here. CityFarmer mentioned in another thread that investors have exposure to more variety of biz rather than restricted to one profession. Unfortunately, the baijiu industry is not within my circle of competence. I have never tasted baijiu before and couldn't tell it apart from snake grass water. Who said investing is easy?
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#18
If you've seen the chart from 90cts to 20cts before rebounding a bit that's like a 70% drop so buy in now at low price makes sense there's a chance for stock appreciation and div yields too.

I'm very curious how much dividend payout if they intend to give one. From the report industry competitors are doling out div payout ratio of 27-33%, will dukang mgt also follow what industry doing?
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#19
I came across this article while researching up some vintage cognacs I was looking at for my collection.

some info on just how big is the alcohol spirit market in china and customs on how baijiu is consumed. Big Grin

source: Cognac Sales in China Strong – but Dwarfed by Baijiu

With all the hullaballoo about rapidly increasing cognac sales in China, you’d be forgiven for assuming that every home has multiple bottles, each business person has a bottle in their desk drawer and every present given is an aged masterpiece.

However, at a debate held in London this week by the Worshipful Company of Distillers, the scale of cognac and other imported spirits was brought firmly into context. Indeed, cognac sales are great – and rising – but are a mere drop in the ocean compared to the Chinese fire water known as Baijiu.

[Image: 2007471124058128.jpeg]
Baijiu Chinese Spirit

And when you look at the figures – 900 million cases of Baijiu per year versus 4 million cases of imported spirits – it starts to come into perspective. In fact, despite all the hype and demand, imported spirits account for only one per cent of the spirits market. And of this one per cent, Hennessey Cognac, Martell Cognac and Chivas Regal Whisky make up half of all sales.

Despite this, the general consensus of the debate was one of optimism, with estimates that by 2015, the number of Chinese middle class could hit 430 million (today it’s 300 million).

Martin Riley, Chief Marketing Officer of Pernod Ricard, said “the opportunities are just beginning (in China) and international spirit companies have a chance to play a very important role.”

The role of alcohol in China is somewhat different to that of the West. The average person drinks around 11.6 litres per year; it’s consumed at virtually every food occasion. There is no stigma or negativity regarding alcohol, and 85 per cent of all alcohol consumed is at food occasions – mostly the clear, nationally produced spirit of Baijiu. Cognac is traditionally used for toasting.

Riley said that “in terms of route to market the Chinese like the idea of luxury and are keen to associate drinking good quality alcohol with success, and Cognac can hold the high ground there. There is an emerging trend of young professionals buying their first home and then building a bar in it and wanting prestige international brands stock there to be proud of.”

Marketing cognac and other international spirits in China is not as straightforward as perhaps it might be in the West. Culture, belief and various other differences create additional challenges, and it’s necessary for the producers to have ‘local talent’ to truly understand their market. Simple differences such as bottle shape and/or colour can have a massive impact on sales.

Reality checks were also highlighted by Bill Farrar of the Edrington group who said, “China may go its own way in terms of the international spirit brand market. In the longer term they might just want to do their own thing and look inward to domestic production.”

To this end, spirit giants LVMH and Diageo have already acquired baijiu makers, Wenjun and Shui Jing Fang, and are taking full advantage of marketing a luxury baijiu.

But despite all the cautionary tales, it’s believed that cognac and other luxury imported spirits will continue to make headway in the Chinese market.

But in the same way as the West is looking to the East for continued growth, there’s also the possibility that the reverse could also occur. The alcohol producers of China are also aware of increased opportunities as the country slowly clambers towards regaining its crown as the world’s number one economy.

Who knows, perhaps Baijiu could one day be rubbing shoulders with our beloved cognac on the shelves in the west. Stranger things have happened. One thing’s for sure, the scope for cognac in the Chinese market is enormous, and set to get larger. But as always, the future holds many different options. Will the Chinese forsake their beloved Baijiu for international brands? We’ll just have to wait and see.
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#20
Bright spots in China's Slowdown
Source: Grace Ng of straits times 10 July 2012

bai jiu companies listed as one of the bright sports as china slows down. Big Grin
quite understandable more people turn to drink to forget their woes, alcohol companies are quite recession proof. Big Grin

other bright spots are sectros in medical, services and green products.

quicky grab your copy from the mamak news stand and read about it. Big Grin
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