Photos by Ngo Yit Sung
RETIRED SINGAPORE civil servant Chia Kee Koon has invested in shares of Dukang Distillers and understands the business pretty well.
It is an S-chip but he is not deterred. He reckons that Dukang's business, for one thing, has a high enough barrier to entry by competitors.
But he had not seen how the Dukang baijiu is produced. So when he heard of a visit to Dukang being organised for fund managers, he got interested and agreed to pay his way there.
On May 30, he flew to Zhengzhou, the capital of Henan province. From the airport, he was picked up by Dukang staff and travelled by car for two hours to Luoyang city.
Four other fund managers from Shenzhen and Beijing similarly made their way to Luoyang.
The next day, they were taken to Ruyang on the outskirts of Luoyang, where Dukang has its operations.
They checked out the fermentation pools where sorghum (a grain which is the raw material) is left to ferment for 60 days. They visited the distillation line, grain alcohol storage, and bottling line.
Dukang is a leading producer of baijiu in its home province of Henan, the most populous province in China.
The Group carries a broad range of baijiu products that are sold and marketed under two distinct brands, ‘Dukang’ (“杜康”) and ‘Siwu’ (“四五”).
Its operations in Ruyang now have additonal bottling lines, fermentation pools, and storage area. The Dukang cultural center (in front of office building) is being constructed to showcase the Dukang products and history.
All this reflects the growing sales of the products.
In fact, the Dukang management is targeting to achieve RMB3-5 billion in sales over the next few years on a CAGR of 30% or more.
The market for baijiu is growing rapidly in China owing to population growth and rising disposable income.
The local government is supportive of the Dukang business.
It has relocated neighboring villagers near its Ruyang operations, and is in the midst of restoring a relic of the founder, Du Kang, to boost tourism into the area.
On top of that, the government is constructing Jiuzu Avenue which will lead off from the expressway directly to Dukang’s operations.
If there is one thing not going well, it is the stock price -- which reflects investors sour sentiment towards S-chips.
Dukang, which listed on Singapore Exchange in Sept 2008 (at 31 cents a share) recently traded at 24 cents, a sharp fall from the 60-cent level about 12 months ago.
The management is looking into how it can improve things -- see our recent story >> DUKANG DISTILLERS considering dividends, share buyback after stock fall
The Edge Singapore magazine recently picked Dukang as one of the 8 laggard stocks which it reckons will do well. See >> The Edge hunts down 8 undervalued laggards that could catch up
Comments
I know know ... this is S-Chip but the stock is now looking attractive after recent month of may severe beating
As people in China start of have more disposable income that's something to toast about, and if a recession comes .. well .. the most common antidote for misery is also alcohol so sales of luxuries like liquor should grow and grow