Friday, June 8, 2012

Dukang Distillers

Dukang Distillers: Hosts eye-opening visit for investors. Retired SG civil servant Chia Kee Koon has invested in shares of Dukang Distillers and claims he understands the business pretty well. Mgt is targeting to achieve RMB3-5b in sales over next few yrs on a CAGR of 30% or more. The market for baijiu is growing rapidly in China owing to population growth and rising disposable income. Demand for baijiu has been shown to be unaffected by economic down cycles. The market grew at CAGR of 30% in the 2007-2011 periods. Grp had in recent results briefing said it will consider measures such as paying out div and buying back shares. Fundamentally, group has a cash hoard of Rmb 583m as at end-March 2012, or a net-cash position of Rmb 483.0m (SG$97m) vs current market cap of $187.6m, suggesting that 51.8% of share price is backed by cash. At current price, grp trades at a mere 4.4x Trailing P/E, 3.8x Forward P/E and 0.61 P/B. (Valuations could be even lower on an ex-cash basis) In other related positive news, Credit Suisse noted earlier this wk that China's alcohol consumption may increase, pointing to improved prospects for domestic Chinese spirits producers as the economy cools. House favored names with strong branding power as well as reputations for quality and safety in product lines that retail between 150 yuan-1,200 yuan ($19-$155). It said that the peak season for alcohol consumption in China is in the second half of the year, an increased easing in money supply bodes well for higher consumer spending later this year.

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