Advertisement billboard for Dukang's premium baijiu (white wine) at the expressway from Zhengzhou airport to Luoyang city where Dukang's operations are located.

@ Dukang Manor: From left: Huo Lei (GM of Dukang), Chen (plant manager), Chia Kee Koon (private investor, Singapore), Zheng (Director of Jufeng Global Asset Management), Huang (涌容资产管理公司), Zhang (United Innovation Capital), Gong (United Innovation Capital), Shi (涌容资产管理公司), Dukang staff, lady tour guide

Investors admiring a new gateway under construction that will lead to the Dukang operations area, including a new office building.

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.

Investors at bottling line: The labelling, tagging and packing of the bottles are done by hand.

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.

Dukang plant manager Chen (left) showing Singapore private investor Chia Kee Koon around the bottling area.

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.

Fermented sorghum (on the floor) waiting to be shovelled into the still set-up in the background where it will be steamed and the condensate collected as grain alcohol.

Grain alcohol is stored in stainless steel tanks for more than six months and up to several years before they are bottled. Construction of these tanks were completed in 2011.

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.

In Luoyang city: Investors check out stores selling Dukang products. The Dukang banner can be seen prominently displayed.

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.

The red boxes contain the premium Jiuzu Dukang product.

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