Lotte Chilsung of South Korea is one of the largest beverage companies in Asia, distributing drinks such as Scotch Blue (top picture) -- and now, Dukang's baijiu (below).

IT’S STILL EARLY days but Dukang Distillers’ recent tie-up with Lotte Chilsung Beverage Corp of South Korea in Nov 2011 holds out a promise of more good cheer to come for Dukang.

Lotte has agreed to distribute the Luoyang Dukang brand of baijiu products via its distribution network of hotels, supermarkets and departmental stores in South Korea.

At S$1.7 billion in market cap currently, Lotte Chilsung Beverage Corp is a big player and a subsidiary of Lotte Group which has over US$30 billion in sales annually.

If sales of Dukang's alcoholic products take off in South Korea, Dukang Distillers will have embarked on a fruitful internationalisation effort beyond China, where its Dukang-brand baijiu (white wine) is a recognized name.

Maybank Kim Eng Research has highlighted this Korean growth driver in a report last week on Dukang.

It is the latest in a revival of analyst coverage on Dukang, which listed on Singapore Exchange in Sept 2008 (at 31 cents a share).

Other houses which have started covering Dukang of late include UOB Kay Hian in Singapore and OSK Research in Hong Kong.

In her report last week, the Maybank Kim Eng analyst, Alison Fok, rated the stock 4 chillies out of 5. This would make it a pretty hot stock.

The analyst highlighed its strong balance sheet which is backed by a strong net cash position of RMB709.3m, thanks to positive operating cash flows and TDR net proceeds of RMB 297 million from 2011.

“Compared to peers trading at 28x PE, the group is trading at a huge discount of 9.4x its historical PE,” wrote Alison.

Net cash makes up 45% of its S$311 million market cap, which means the PE ex-cash is far lower than 9.4.

The company has not paid a dividend since its listing, though.

The stock recently traded at 39.5 cents in Singapore while its TDR in Taiwan, TWD11.65 (equivalent to about 50 Singapore cents).

Dukang stock is still languishing at the 40-cent level but with greater analyst coverage, trading volumes have spiked up, as the Bloomberg chart above shows.

While Maybank Kim Eng doesn't have a target price for the stock, UOB Kay Hian analyst Tan Jun Da initiated coverage in February 2012 with a 'buy' recommendation and target price of S$0.51.

The valuation is based on a target PEG (Price/Earnings To Growth ratio) of 0.4x, which is at a 20% discount to peers’ average of 0.5x.

Notably, Dukang's chairman, Gao Feng, holds a big stake -- 43.84% -- in the company.

For the full broker reports, click Maybank Kim Eng and UOB Kay Hian.

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