Dukang Distillers

Dukang Distillers: Announced strong 3Q13 results versus a y/y basis, but was weaker on a q/q basis due to a plant relocation during the quarter. Revenue at Rmb638.6m, +8% y/y, -14% q/q while net profit at Rmb102.6m, +64% y/y, -29% q/q. The stronger y/y top-line was due mainly to the increase in revenue from Luoyang Dukang operations, which saw revenue rose 41.5% y/y to Rmb548.8m. However sales was impacted by a slow down in group’s Siwu operations due largely to a production disruption during the plant relocation from Zhoukou City to Luoyang City. The Group’s gross profit margin increased to 42.9% vs 38.9% y/y, primarily due to increasing contribution of Jiuzu Dukang product series and sales of higher GPM products during the Chinese New Year festive season. The gross profit margins for Luoyang Dukang premium and regular series have been on the uptrend for the past ten quarters, indicating the growing reputation of the Dukang brand. Going forward, group note that with the completion of relocating the Siwu plant in Jan this year, expect Siwu’s sales to normalize and performance to improve with the benefits brought about by the restructuring exercise. Add that the recent endorsement by the Ministry of Foreign Affairs as one of the official baijiu to serve foreign dignitaries is a strong testament to theDukang brand backed by its rich history and heritage. Believe that Dukang will be a wise choice for promoting the Chinese culture to foreign dignitaries.