Dukang Distillers

Dukang Distillers: Strong set of 1Q13 results. Rev at Rmb406.5m, +67.6% yoy and -10.3% qoq and net profit at Rmb63.9m, +74.7% yoy and +158.7% qoq. Gross margins improved further at 39.6% vs 38.3% yoy. Grp note that despite despite the first qtr being a lull period for the baijiu business, grp managed to kick off its third yr of offering baijiu with 67.6% and 74.7% improvement in sales and net profit. Grp’s sales vol, +71.7% yoy to 10,186 tons on better performance across all brands. Grp’s strategy to position its Dukang brand as baijiu of choice for the political and commercial banquets paid off as sales vol of Luoyang Dukang premium and regular series rose 60.9% and 67.3% yoy to 679.0 tons and 5,027.0 tons for 1Q13 respectively. Sales vol of Siwu premium declined marginally by 7.4% yoy to 137.0 tons while its regular series rose 84.3% yoy to 4,343.0 tons for 1Q13, mainly attributable to product refurbishment and brand image of economical products that appeal highly in times of economic uncertainty. ASP for Luoyang Dukang premium series, +23.1% yoy to RMB188.5 per kg and the ASP for Luoyang Dukang regular series increased 1.2% yoy to RMB34.5 per kg for 1Q13. However, the ASP for Siwu premium and regular series dropped 6.2% and 14.4% yoy to RMB125.5 per kilogram and RMB20.2 per kilogram respectively. As a result, sales mix from products under Dukang brand improved from 68.9% to 74.2% yoy for 1Q13, whereas sales mix from products under Siwu brand declined to 25.8% for 1Q2013. Going forward, grp foresee sales for the next two qtrs to escalate further as the coming festival seasons would typically boost the sales for baijiu products. Aim to embark on its expansion strategies to enhance production capacity for grain alcohol by 40% this yr, as well as to increase the market penetration outside its stronghold in Henan.