Singapore “Flyer” Of The Week: Dukang Distillers

StockMarketBoardThe market toasted a jump in third-quarter numbers at Dukang Distillers Holdings (SGX: GJ8) as the shares flew 18% this week to S$0.50.

The maker of Chinese baijiu posted a 64% jump in third-quarter profits to RMB103m (S$21m), thanks to an 8% rise in sales to RMB639m (S$130m).

The rise in sales should not have come as a huge surprise. Dukang has been consistently reporting rising sales for the last seven years. Since 2005, revenues have climbed almost five fold, which equates to an increase of around 25% a year.

Dukang also said it made more profit on every renminbi of sales because of demand for higher-margin products over the Chinese New Year period. The higher gross profit has also been brought about by a bigger contribution from its Jiuzu Dukang premium products.

To all intents and purpose, Dukang Distillers is a growth company. Its top-line is expanding at about 25% a year, while the bottom line has been growing at around 30%. However, it is still valued at around six times earnings, which looks ostensibly cheap.

However, there are a number to factors to consider. Firstly, it is a Chinese company, which might suggest the need for a bigger margin of safety. Secondly, there are political headwinds that could hamper the company’s extraordinary growth rate. China’s new president Xi Jinping has insisted on curbing many of the lavish benefits that Chinese officials have enjoyed and grown used to over the years.

That could spell tougher times ahead for Dukang Distillers unless Chinese diners can down their baijiu without drawing too much attention to themselves with loud cries of “Gan Bei” every time they empty their glasses.

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