Dukang’s Investor Relations Manager Mr. Ngo Yit Sung said the liquor maker is looking to replicate its huge success in Henan Province on a national scale.  Photos: Aries Consulting

DUKANG DISTILLERS (SGX: DKNG), a Henan-based maker of baijiu liquor, enjoys top market share in its home province – also China’s most populous with over 100 million residents.

However, a company official told investors the spirits play is looking to be a national name via capacity increases, channel expansion, product diversification and brand enhancement.

It makes perfect sense that Dukang Distillers is based in one of China’s most ancient of places – Henan Province – home to over 103 million people and often referred to as the “Cradle of Chinese Civilization.”

Furthermore, baijiu is often nicknamed “China’s national drink” -- so it only makes sense to distill the beverage in the country's "cradle."

Dukang recently 0.32 sgd

Dukang is the leading brand in Henan, which currently has a baijiu market size of 35 billion yuan, or around 10% of China’s entire baijiu market despite the province having just 8% of the country’s population.

Therefore, being based in one of the country’s most traditional regions while producing perhaps the civilization’s most traditional spirit is a double bonus for Dukang.

Toasting Henan, Eyeing China

Despite Henan Province having a population larger than The Philippines and just shy of Mexico’s, Dukang Distillers is not content to rest on its laurels as the top baijiu player in China’s biggest province.

“Dukang is operating proactively to capture growth opportunities arising from rapidly expanding market demand for baijiu all across China,” said Dukang’s Investor Relations Manager Mr. Ngo Yit Sung.

Speaking at the Aries Consulting-sponsored “Braving the Waves: China Investment Strategies 2013” conference in Shenzhen, which featured Singapore, Hong Kong and PRC-listed firms, Mr. Ngo added that boosting production capacity was not merely undertaken to grab more potential market share.

It was also in response to real time, on the ground growth in demand for Dukang’s expanding portfolio of products across the country.

And there was plenty of room for growth because no one producer enjoyed a dominant market share on a national scale.

“China’s baijiu market is a fast-growing but highly fragmented sector with a CAGR of over 30% for the past five years and over 5,000 baijiu liquor enterprises operating across the country,” Mr. Ngo said.

Construction of fermentation pools: Henan-based Dukang is not shy about boosting capacity in a big way to chase growing demand. 
Company photo

Total baijiu sales across China from all players in 2011 amounted to 374.7 billion yuan and profits stood at 57.2 billion, while in the first half of 2012, the baijiu sector maintained an impressive 17.2% growth.

Therefore, the Henan-based distiller is not shy about boosting capacity in a big way to chase this growing demand.

“Our strategy is to fully establish our Dukang-branded products by increasing annual grain alcohol production capacity for the Dukang brand by around 40%, or 3,000 tonnes, in 2013,” he said.

And Dukang is also increasing its distribution channels to attain national coverage, with the total number of distributors for the Dukang brand recently increasing from 170 to 222, covering 25 provinces in 2012.

“Dukang’s strategy enables us to achieve market leadership in distributing Dukang and similar brand products in China,” Mr. Ngo said.

Dukang's baijiu aging in Henan.  Company photo

Dukang produces, markets, and sells its baijiu products under the Dukang and Siwu brand names in the PRC.

Popular product series under the Dukang brand include Jiuzu Dukang, Guohua Dukang and Zhonghua Dukang whereas the best-selling product series under the Siwu brand include Yu Shang Jiu and Siwu Old Cellar 1949.

For the 12 months ended June 2012, Dukang’s revenue rose 28.1% year-on-year to 1.83 billion yuan on faster sales of products sold under the Dukang brand.

The sales mix from Luoyang Dukang’s premium series and regular series increased to 26.6% and 34.8%, respectively, from 22.1% and 32.0% for FY2011.

More recently, Dukang saw its bottom line surge nearly 75% year-on-year during the July-September 2012 quarter (1Q2013) to just under 64 million yuan, boosted mainly by the contribution from the Luoyang Dukang brand series.

It was also benefitting from a higher percentage of sales of high margin items.

Photo: Dukang

The Luoyang Dukang series accounted for 74.2% of group revenue in 1Q2013, compared with 61.4% in FY2012.

The Luoyang Dukang premium series – the group’s top-shelf star performer – has an average current selling price of around 188.50 yuan per kilogram, up over 23% year-on-year.

While the Dukang series will be the key products for the company, the Siwu brand will serve demand for quality yet economically-priced products.

And it wasn't just "China's National Drink" that interested Dukang.

The firm recently inked an agreement with Taiwan's Tobacco and Liquor Corp (TTL) for the latter to produce Japanese sake products that will be sold in PRC under the Dukang brand name.

See also:

DUKANG DISTILLERS: To Launch Top-Grade Sake In PRC

DUKANG: 1Q2013 Net Profit Surged 75% To Rmb 63.9m

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#1 Sharde 2013-02-01 20:25
The fragmentation of the sector is a bit of a putoff. But given Dukang's dominance in the most baijiu-happy province of Henan, and its clearly stated intentions to become a national brand, I for one will be watching this stock

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