Dukang Distillers Holdings

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#41
Dukang's profit growth depends on how much grain alcohol from older fermentation pools has been stored for future sales. Unfortunately, there is no disclosure of this. The company's annual report shows that as at 30 June 2012, work-in-progress amounted to RMB 335m, some RMB 100m higher than the year before. This may suggest that the company is not pushing for short-term sales growth.

Premium "Dukang" baijiu brings in disproportionate profit:


Series.........Sales vol (tonnes).....Gross profit(RMB m)
Premium...........2,652..(12%)...............262..(57%)
Regular...........18,609..(88%)...............202..(43%)
Total................21,261(100%)..............464.(100%)
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#42
results are out if you haven't seen it yet Big Grin

1Q2013 Presentation
1Q2013 Results
Announcement
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#43
Plasticizers found in baijiu

Quote:The baijiu industry has suffered a major setback after plasticizers were allegedly found in almost all brands of the liquor.
On Monday, shares in the Shenzhen-listed Jiugui Liquor Co, a large baijiu manufacturer based in Hunan province, were suspended from trade after business news website 21cbh.com reported the company's products were found to contain excessive plasticizers.
The trading of shares in the company will resume after the relevant facts are verified, the suspension notice said.
The company's shares remained suspended on Tuesday.
"I felt very confused about the test results as reported by media because there is no special national standard for such a chemical in baijiu at all. And now the company's products have been sent to a qualified department to be tested," Fan Zhen, vice-president of Jiugui Liquor, was quoted as saying by China Central Television on Tuesday.
Plasticizers are banned in China as food additives because the chemicals can cause male fertility problems and induce early female puberty, and experiments on animals have demonstrated a carcinogenic effect.
Liquor products produced by Jiugui, which were bought in Beijing, were tested for three types of plasticizers at an independent lab, 21cbh.com reported on Monday.
The amount of plasticizer DBP in the company's products was 1.08 mg/kg, far exceeding the national standard of 0.3 mg/kg for food, the report said.
On Monday, the China Alcoholic Drinks Association said on its website that the country's liquor products do contain plasticizers, but the content is far below the standard limit set on such products overseas.
According to a statement posed on its website, the association launched an investigation into baijiu manufacturers on the mainland after plasticizers were found in a range of foods and drinks in Taiwan in May 2011.
"High-grade baijiu products have a higher content of plasticizers, while the content in low-grade baijiu is lower," the association said.
The products were contaminated during the transfer, storage and packing of liquor, because plastic products are widely used during this process, it said.
"But since plastic-related products and equipment have been in use in the production of baijiu since the 1970s, no human illness has been reported due to plasticizers in baijiu until now," the statement said.
Dong Jinshi, executive vice-president of the International Food Packaging Association, said on Tuesday it is possible that these chemicals were added by manufacturers.
"Otherwise, it would not be common to see almost all products contain plasticizers," he said.
Dong said the chemicals help liquor products easily adhere to the glass and enhance flavor.
"Government authorities should clarify the details of the testing of plasticizers in baijiu as soon as possible. And strict punishments for the manufacturers found to be engaging in illegal activities should also been launched," Dong said.
Sales of liquor products by Jiugui Liquor were continuing as normal at the Beijing Hua Tang Yokado Department Store on Tuesday, said Cheng Ning, who is in charge of external liaison in Hua Tang Yokado Commercial Co in Beijing.
"So far, we have not received any official notice to pull any liquor products off shelves. But now I am concerned about the sales of baijiu, which may be affected in the near future," she said.
Bian Chunshan, 26, who worked in Beijing for four years, said he is extremely worried about his health as baijiu was once a frequent choice of drink when he socialized.
"Now I am thinking of replacing baijiu with other types of drinks, such as beer and red wine," he said.
China is conducting research into setting a specific limit for the amount of plasticizers in baijiu, according to the China Alcoholic Drinks Association.
Contact the writer at jinzhu@chinadaily.com.cn
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#44
despite making so much profits but the company has not paid out ANY dividends at all....
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#45
Recently I sent email containing list of questions (no, not asking about dividend payment Big Grin) to Dukang's Corporate and IR manager (Mr Ngo Yit Sung). He has kindly replied and provided answers.

Here's the questions and answers (edited for clarity):

1. The first of the 3 Dukang's growth strategies is to enhance brand value.
Q: How do you currently differentiate your Dukang's brand against products from another company that also uses Dukang's name and states the same Cao Cao quote in their promotion (for example: Baishui Du Kang from Shaanxi Dukang Liquor Group) ?

A: To clarify, the Baishui Dukang brand is owned by Shaanxi Dukang Liquor Group. Prior to our acquisition of Luoyang Dukang Holdings Limited, there are 3 Dukang distilleries, namely Ruyang Dukang, Yichuan Dukang and Baishui Dukang. These 3 entities were set up before China enacts its Trademark Act, hence the confusion today.

We currently controlled Luoyang Dukang, which consists of Ruyang Dukang and Yichuan Dukang and we own the Dukang trademark. Bashui Dukang was established with the logic that Du Kang, the inventor of baijiu, was born in Baishui District, Shaanxi. The truth is, Du Kang discovered the baijiu making technique in Ruyang District, Henan. Relics such as the Du Kang manor, Du Kang tomb, the well Du Kang drew water to make baijiu are located beside our Ruyang plant and is currently managed by us.

In terms of branding, we position the Dukang brand to target the premium markets, because as the ancestors of baijiu, if there is any brand who can rival the lights of superbrands like Moutai and Wuliangye, it is Dukang. Whereas Baishui Dukang brand is targeting the mid to mass end market. They have another brand named 13 Dynasty which is position to target the premium markets.

However, it is known in the market and by consumers that Baishui Dukang is an imitation of the Dukang brand. This is why when we ramped up Dukang's sales from <RMB300mil before the acquisition till last financial year of RMB 1.1 billion, Baishui Dukang's sales is still languishing at <RMB100mil. Also, previously you will find Baishui Dukang products alongside Dukang's product in Henan, but today you don't see it anymore.Together with the help of the local authority, we have successfully made Baishui Dukang retreat from the Henan market.


2. Different fragrance types of baijiu. Thick fragrance dominates 75% of the market.
Q: Is Dukang only producing thick fragrance baijiu?
A: Yes, both our Siwu brand and Dukang brand are thick fragrance type.

Q: Is the sales growth number for all the three types the same?
A: You may say so as the ratio has been quite stable over the years.

Q: Does thick fragrance dominate baijiu market in every province?
A: Not really, for example in Kweichow Province, sauce fragrance dominates.

3. International sales: Letter of Intent with Lotte Chilsung, MoU with Taiwan Tobacco and Liquor, Accreditation of Sino-Japanese Friendship Partnership Award
Q: Could you give more update on international sales (numbers, percentage growth) ?
A: No further update after the LOI.

Q: Is it possible to get domestic sales vs international sales breakdown?
A: We haven't really started selling internationally, the focus is still the baijiu market in China. If you're talking about Henan Province versus other Provinces in China, the sales breakdown is 75% in Henan, 25% across China.

4. Chairman statement in 2012 Annual report: Dukang has achieved a first place position in terms of market share in Henan province.
Q: Could you please share the resource (survey, news articles, etc) to back the statement?
A: This is based on market intelligence. Previously the leading Henan baijiu producer is called Songhe, a non-listed entity which Goldman Sachs acquired a stake in. I remember there is an article on this. From unofficial data, our Dukang sales in 2012 has exceeded that of Songhe's.

5. Baijiu quality from newer fermentation pool.
Q: Since higher quality baijiu comes from older fermentation pool, how do you maintain baijiu quality with the newer dug fermentation pool?
A: We can cultivate the fermentation mud from the old pool and transplant to the new pool.

6. Capacity and Utilisation
Q: Since 3Q12, output has always been greater than capacity, could you please explain how to achieve it?
A: Since the production of the grain alcohol is not a scientific process, the capacity is an average number and the distillation output depends on the water content of the grains, humidity of the atmosphere. So sometimes we get more than 100% utilization. Also, we will consistently improve out fermentation technique to yield more grain alcohol per pool. If this situation persist, we will revise the capacity accordingly.

7. IPO prospectus: Trump Dragon has 68 types of baijiu. 2012 Annual Report cover statement: Transcending beyond traditional brews.
Q: How many types of Baijiu are you producing now? (categorized by Dukang premium, Dukang regular, Siwu premium, Siwu regular)?
A: We have about 100+ each for Dukang and Siwu. The number of products varies year-on-year as we launch or phase out products.

Q: When and Where are Dukang planning to launch the non-traditional brew (sake?)
A: We actually intend to launch the sake product end of last year but due to the China-Japan dispute on the Diaoyu island, it may not seem to be a good idea to sell sake in China. We will update as and when there are new developments.

Again, we would like to emphasize that the focus of the Group is in the baijiu market in China. It is a huge market to tap.

8. Sales through flagship stores.
Q: Are the flagship stores owned by Dukang?
A: No, they are owned by our distributors.

Q: If the flagship store is owned by third party, does Dukang provide special subsidy to them?
A: No.

9. Declining Siwu sales.
Q: Could you please share a bit what is management plan to rejuvenate Siwu Sales, aside from distributors restructuring which was done recently? (for example: new blending formula? new advertising? )
A: Siwu's business will largely be stable with marginal increase or decline y-o-y. Reason being, most of our resources are focusing to grow Dukang. Nonethelss, when the time is ripe, Siwu will be able to leverage on Dukang's distributor network and expand its sales.

10. Dukang will commit 400 million yuan advertising cost for national market in 2013
Q: How do you differentiate your marketing against competitor with deeper pockets (for example: Kweichow Moutai or Diageo which owns Shui Jing Fang) ?
A: Other than creating brand awareness, what is most important is to ensure quality of the products. And also we are cheaper than them. In our advertising, we focus on emphasizing the rich heritage and culture of the brand, and highlight that we are the ancestor of all baijiu.

Q: How do you split the marketing cost between the need to maintain leadership in Henan, expand to neighbouring province/key markets, and build national brand awareness?
A: Actually we don't really differentiate that way as we are advertising on national channels like CCTV

11. Land-lease.
Q: What is the average length of land-lease?
A: commercial land lease is 50 yrs

Q: Is fermentation pool dug at leased land?
A: Yes.

Q: Is there risk that fermentation pool dug at land where the lease can not be extended?
A: No, as we contribute substantially to the local government's tax revenue, also the local authority are more than willing to help us to grow and flourish.

12. Ms Ma Ke cessation as executive director of finance.
Q: Will there be any replacement for Ms Ma Ke to take care of her responsibility for overseeing daily finance and accounting operations?
A: It will be taken care by our CFO and our CFO will now report directly to the CEO, Mr Zhou Tao.

13. Possible supplier concentration.
Q: Is there any of your supplier that supplies more than 10% of your raw material needs?
A: Yes, but we have many sources such that if A is not able to supply, we can get from B and C. The prepayment arrangement is actually there to help us secure consistent supply of raw material at a certain pricing throughout the year. But still when making purchase, we will still compare prices among different suppliers.

14. Current policy of providing no impairment to trade receivables
Q: Other alcoholic producers (for example: Thai Beverage, Diageo) provide allowance for doubtful trade receivables account but you are not, why are you confident about not having to write down any bad debt in the future?
A: For Dukang brand of products, we only accept cash terms. We extend credit terms to Siwu's distributors. We have worked with trusted partners over the years and have never encounter any bad debt from Siwu's distributors. In fact, during bad times, Siwu will sell better as it is more economical.

15. Relation with Synear Food.
Q: Does Dukang have any relation with Mr Li Wei, chairman of the Board of Synear Food?
A: No, but our Chairman and Mr Li are close friends. They are both the alumni of Zhengzhou university. Also, Mr Li being the senior, introduced us to list in Singapore as Synear was already listed on SGX-Mainboard.

16. English website
Q: When are you going to establish English version of Dukang's corporate website for non chinese speaking investors?
A: No plans in the pipeline yet.
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#46
Excellent. Big Grin

Thanks for Sharing
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#47
Dukang launched a Baijiu Cultural World Tour

http://http://info.sgx.com/webcoranncatt...penelement





Sounds like sleek marketing, but the second video indicated that it is a very small scale event. There is also no information on which city is the next stop after Singapore. Couldn't find any information on weibo or other chinese websites.
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#48
(24-04-2013, 07:18 PM)touzi Wrote: Dukang launched a Baijiu Cultural World Tour
...
Sounds like sleek marketing, but the second video indicated that it is a very small scale event. There is also no information on which city is the next stop after Singapore. Couldn't find any information on weibo or other chinese websites.

Good grief. Is this a bad joke? This is so obviously cooked up for investors in the hope of driving up the share price. It's not aimed at promoting the brand at all. If you want to raise customer awareness you book a shopping centre podium e.g. Marina Square, Raffles City, Centrepoint, Ion Orchard etc. Not a private room for 50 people (which apparently counts as "overwhelming response" in PR-speak) in some fancy restaurant in an expensive hotel (Swissotel in this case). How is this going to help the local distributor sell more baijiu?

If you are doing a "Cultural World Tour", I don't see how you can finish your first stop and not announce where else you're going. Unless you just decide as you go along and book all the air tickets, accommodations, venues etc at the last minute. The sheer implausibility of it all should be obvious. I will not be surprised if Singapore is in fact the ONLY stop on this "Cultural World Tour".

I don't have any smoking-gun proof that they are running a scam, but IMHO this "Cultural World Tour" reflects very badly on the professionalism of the management.

As usual, YMMV.
---
I do not give stock tips. So please do not ask, because you shall not receive.
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#49
IMO, great defensive (sales of alcoholic beverage is usually consistent during good times and bad times) growth company.

https://www.google.com.sg/url?sa=t&rct=j...0626,d.bmk

Spotted it last week just to witness its break out this week.

What a bummer.

It is still undervalued IMO.

(24-04-2013, 08:23 PM)d.o.g. Wrote: ...

I don't have any smoking-gun proof that they are running a scam, but IMHO this "Cultural World Tour" reflects very badly on the professionalism of the management.

As usual, YMMV.

I believe the intended audience is probably local distributors.

Quote:The one-day event was well-received with overwhelming responses and participation from the foreign
affairs officials from Beijing and Henan Province, the Chinese Embassy in Singapore and representatives
from the local associations of the alcohol and F&B industry in Singapore.
Looking ahead, the Group shall continue its concerted efforts to promote “Dukang” branded baijiu
through aggressive advertising and promotion strategies to increase the Group’s brand equity in the
region.
-End

Source: http://info.sgx.com/webcoranncatth.nsf/V...500499DD6/$file/DK_PressRelease_22April2013.pdf?openelement

(vested)
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#50
Anyone know what is their IR contact?

Finding the Value in a Speculative World
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