Dukang Distillers

Dukang Distillers: MBKE issued an unrated report on Dukang, noting that the Company could potentially be worth more, given its current valuation of 4.4x trailing P/E, and 0.6x P/B is quite attractive when compared with its Ashare listed peers. Undemanding valuation perhaps may be due to the low brand recognition and poor acceptance by overseas investors. MBKE think further enhancement in the brand value would probably narrow the valuation gap between Dukang and other top brands. Since the merger of the two Dukang brands in 2010, Dukang has increased its market share in Henan to around 3%. Management is targeting a market share of 10% by way of capacity expansion, distribution network development and marketing efforts. MBKE notes that the biggest risk for Dukang is that downward pressure on price and consumption of premium baijiu brands, such as Moutai and Wuliangye, due to the restriction on luxury baijiu consumption by government and army officials might pass down to mid-end brands in the future.