Wednesday, February 6, 2013

Dukang Distillers

Dukang Distillers: Laggard, but will it rally after 2Q results?. IT IS apparent that Dukang Distillers is a laggard in the recent market rally. Dukang’s price had suffered a setback in Nov, on back of : 1) Findings that excessive plasticizers (i.e. toxic chemicals which can induce early female puberty and cause damage to men's reproductive health over prolonged consumption) were found in Jiugui Liquor products. 2) There was continuous strong anti-corruption rhetoric from the new Chinese leaders which might reduce demand for expensive baijiu. Exensive baijiu such as Moutai are often used as gifts to local government officials. 3) Expensive liquor wasbeen banned in military and govt receptions. All of these contributed to the weakness in the share price performance of the baijiu players which undoubtedly affected Dukang. NextInsight investigates and proves that the concerns are unfounded. Note that: - Dukang’s end customers are not the military. Grp’s products are sold through distributors to mainly hospitality establishments, supermarkets and specialty stores selling tobacco and alcohol products in the PRC. - Dukang’s products are not as high end as Moutai or Wuliangye. From news, expensive baijiu is indeed being replaced by less expensive baijiu at offiical banquets, thus this may have a net positive effect on Dukang over the long term. - Results. According to 1Q13 results announcement, mgt remained upbeat on prospects and believe the upcoming 2Q and 3Q should be good due to festive seasons. It would be interesting to see the management’s outlook in the coming qtrs in view of the recent industry headwinds.

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