Dukang Distillers Holdings

[Wildreamz]

Why did Dukang borrow RMB160M in Q2, despite having RMB500M cash as a group excluding the borrowed RMB160M loans.

Trouble in one of its brands? Please don't tell me Dukang has to borrow more to maintain banking relationship

Maintain liquidity? Most companies don't use cash for all their activities, they will at least maintain a portion of their assets in debt. Debt to equity ratio is at 0.23, LT debt to equity at a negligible 3%.

They have trouble in all of their brands except maybe Dukang regular series.

[rogerwilco]

Interesting news... Dukang is not just competing against another baijiu manufacturers but also other alcoholic producers.. I hope they have products and marketing that target young professionals

http://www.jingdaily.com/liquors-loss-is...ina/43232/

LIQUOR’S LOSS IS RED WINE’S GAIN FOR CHINA AUSTERITY DRIVE
BY JING DAILY

If it wasn’t already clear how much Chinese drinkers love red wine, recent growth numbers as a result of the government’s anti-corruption crackdown should make it pretty obvious. While the campaign has caused high-end alcoholic beverages as a whole—including both wine and spirits—to see major sales slumps, red wine has stood out as a bright spot in the alcohol market.
According to a recent report by Vinexpo, wine consumption as a whole suffered a predicament similar to that of high-end liquors such as cognac and baijiu as the government cracks down on luxury gifting and fancy banquets paid for by public funds. When looking at red, white, and rosé wines combined, total consumption decreased by 2 percent in 2013 after growing by 27 percent between 2007 and the previous year. China actually saw a 10 percent decline by value in wine imports from France, which make up 40 percent of all the country’s imported wine.
If you just look at red wine, however, you see a completely different story. Vinexpo also concluded that China including Hong Kong overtook France and Italy as the world’s largest red wine consumer in 2013. The amount of consumption has skyrocketed by 136 percent in five years. In fact, 155 million of China’s 181 million cases consumed during the past year were red.
Much of this growth in red wine drinking is coming from middle-class consumers purchasing mid-range bottles. According to a report by the South China Morning Post:
The revenue gap has been, at least partially, filled by demand from young urban professionals who have developed a genuine love and appreciation of wine, rather than a desire to guzzle down exorbitantly priced Lafite Rothschild or Pétrus.
“These are younger people in their 20s and 30s, urban professionals who see wine as a hobby and a way of socialising. They drink to enjoy wine not to fall down,” says Campbell Thompson, who runs The Wine Republic, a company little affected by the gift-giving clampdown. It notched up an increase in sales last year to 20 million yuan (HK$25.5 million).
Many wine companies have been able to weather the slowdown by offering affordable bottles. One example is Bordeaux vintner Helen Ponty of Le Ponty Wines, who visits China to sell wine directly to customers. According to South China Morning Post:
Since starting the business less than two years ago, the entrepreneur has sold 50,000 bottles, with China demand now accounting for around a third of the Bordeaux vineyard’s production. Sales are consistent, despite the austerity drive.
“When I moved to China everyone was telling me you have to be very cheap, or very expensive, that there was no market for wines at around 300 yuan to 600 yuan,” says Ponty.
“Now there is no more market for the expensive wines – the government doesn’t buy it any more and the big companies have cut back, so there is now a market for those mid-range wines like ours.”
Another example of a Bordeaux seller cashing in on this mid-range shift is Maison Sichel, which actually logged 30 percent China growth over the past year. In an interview with The Drinks Business on how the company did it, the company’s export director Charles Sichel said it was simple: selling to the middle market.
“Since the new Chinese government tried to stop corruption using ostentatious gifts, which included cases or bottles of very fine wine from Bordeaux, the Chinese have suddenly discovered that the 1855 classification is not only for the first growths, and they have also discovered delicious cru bourgeois offering great value for money,” he recorded.
Maison Sichel, which has been shipping directly to China since 2000 and has had an office on the Mainland since 2008 (initially in Beijing and now in Shanghai), has been busy developing a market for fine wines from Bordeaux but also the region’s mid-level wines – those with an ex-cellar price between €5 and €20, according to Sichel.
This triumph of the mid-range product is being felt elsewhere in China as luxury sales slow. When it comes to the spirits business, global drinks conglomerate Diageo reported major drops in luxury spirits sales, but saw 37 percent growth for the cheaper Bailey’s. Strong “masstige” sales have also helped mid-tier watch and fashion brands, boosting companies such as Coach in China, who see the country as a savior from slowing middle-class sales in the United States.

http://www.thedrinksbusiness.com/2014/02...negociant/

CHINA SALES UP 30% FOR BORDEAUX NÉGOCIANT
10th February, 2014 by Patrick Schmitt
Bucking a trend seen among many négociants in the last 12 months, Maison Sichel has enjoyed a rapid rise in Bordeaux sales to China during 2013.

Sichel logoWhile mainland China has suffered a slowdown in sales of top-end Bordeaux since the country’s new Communist Party leaders were appointed at the end of 2012, Maison Sichel has actually seen a 30% rise in sales to the country over the last year.

Explaining how the négociant has increased its business in the mainland despite an overall decrease in fine wine sales, Charles Sichel, Maison Sichel’s export director cited the success of a push by his business on the less expensive end of Bordeaux.

“Since the new Chinese government tried to stop corruption using ostentatious gifts, which included cases or bottles of very fine wine from Bordeaux, the Chinese have suddenly discovered that the 1855 classification is not only for the first growths, and they have also discovered delicious cru bourgeois offering great value for money,” he recorded.

Maison Sichel, which has been shipping directly to China since 2000 and has had an office on the Mainland since 2008 (initially in Beijing and now in Shanghai), has been busy developing a market for fine wines from Bordeaux but also the region’s mid-level wines – those with an ex-cellar price between €5 and €20, according to Sichel.

This has meant that 20% of the négociant’s €42 million global turnover is now accounted for by China, and half of that business is non classed growth Bordeaux.

“After years of banging on doors our customer base has come to acknowledge Bordeaux’s mid-range,” he recorded.

“A lot of the others have concentrated on trying to patch up their cru classé business, but we have motored on with our petits chateaux, cru bourgeois and lesser cru classé business very successfully.”

But there’s a further aspect to Maison Sichel’s expanding Bordeaux business in China, and that’s the supply of wine for private label wines sold in the mainland.

“Most wine merchants like to develop their own brands because the Chinese want complete control… and a lot develop their own brands and invest large amounts to promote them and maximise their visibility,” he said.

Continuing he explained, “This is were we come in with our Bel-Air winery, because we do a lot of contract winemaking for people in the UK and France, and now a lot of Chinese customers as well.”

As a consequence, around 35% of Maison Sichel’s business in China is the supply of own-label wines, representing about 50% of the négociant’s volume in the mainland.

As such wines are blended in Bordeaux for Maison sichel’s Chinese customers’ tastes, Sichel noted that they like “fruit” and are less inclined to ask for “massively structured or oaky wines”.

Speaking more generally to db about his experience selling wine in China, he said, “The Chinese have come in late in the wine game but they have learnt incredibly fast about the product and then how to market and distribute it.”

He then added, “It’s a massive country and we are finding new customers all the time.”

[greengiraffe]

I don't know much about this co but certainly if we learn from experience - there could well be fishy business going behind the scene. Borrowing instead of using cash hoard? Is the cash hoard real?

Not Vested

Why did Dukang borrow RMB160M in Q2, despite having RMB500M cash as a group excluding the borrowed RMB160M loans.

Trouble in one of its brands? Please don't tell me Dukang has to borrow more to maintain banking relationship

Maintain liquidity? Most companies don't use cash for all their activities, they will at least maintain a portion of their assets in debt. Debt to equity ratio is at 0.23, LT debt to equity at a negligible 3%.

They have trouble in all of their brands except maybe Dukang regular series.

[arriyana]

SGX has already ruled that the two parties are not acting in concert, therefore not required to issue a GO. If they choose to act in concert in future, there is nothing much SGX can do unless they flout SGX rules.

I don't understand. So can sgx stop them? Or can't they?

Anyway, look forward for Dukang's result later today.

Sorry for the late response but no, SGX can't do anything about it. They have already ruled not acting in concert so I don't think they have the intention to altering that decision either.

[Wildreamz]

Sorry for the late response but no, SGX can't do anything about it. They have already ruled not acting in concert so I don't think they have the intention to altering that decision either.

If they can't act in concert in the future, I think it is a good thing for investors worrying that their investment will be bought up on the cheap.

Because neither parties (who bought a sizable share at $0.474 each) will be willing to compromise.

[arriyana]

I should rephrase that. SGX ruled that they are not acting in concert only means that there is insufficient evidence to proof collaboration. Any major change in controlling shareholder should still be taken with some wary. But I agree Dukang financials look attractive.

[Tiggerbee]

Fidelity has started selling the shares in the open market.

[Wildreamz]

Fidelity has started selling the shares in the open market.

Perfectly natural..

Business wise:

At least for the next 2-3 quarter or so, they will probably have similar "profit warnings", base on the trend established in previous 2 quarters (high tier Baijiu marketing and price cutting into the mid-tier range).

It will be a mutually destructive price and marketing war.

And Dukang being a relatively small player will be quite vulnerable. Based on the absolute amount of money each company has to spend, they are certainly at a disadvantage.

Stock price wise:

There are no foreseeable positive price catalyst over the next 1 year, except a takeover bid.

There will be selling pressure by speculators and Fidelity, stock will only be held by very long term shareholders (if there are any).

[Wildreamz]

I should rephrase that. SGX ruled that they are not acting in concert only means that there is insufficient evidence to proof collaboration. Any major change in controlling shareholder should still be taken with some wary. But I agree Dukang financials look attractive.

Understood. Sorry, as I'm new towards this kind of financial shenanigan.

Now my question is, if we assume the worst (an intention on their part to squeeze every penny and profit, at the expense of reputation and maybe even bending the law): what is the worst thing they can do given their position as majority shareholders to abuse the system and minority shareholder to maximize profit?

Can they jointly launch a takeover bid after 4 months at say $0.28? (that's about 20% premium to last traded price but still..)

[arriyana]

Unlikely given that they had paid quite a substantial premium for that company. If they wanted the company private, they could have done it with GO.