Dukang Distillers issues profit warning on lower revenue, earnings for Q2

DUKANG Distillers Holdings announced after trading hours on Monday that the group expects its overall revenue and earnings to be significantly lower for its second quarter ended Dec 31, compared to a year ago.

The decrease was due to several reasons.

Firstly, Ruyang Environmental Protection Bureau had issued targeted orders to various industries, including the group, to restrict production and cut emissions of industrial pollutants in accordance with the requirements of government departments. Accordingly, the group's baijiu production and operations were significantly affected for 2QFY2018.

As the severe pollution and smog caused a significant decline in the purchase of baijiu products by the distributors in FY2017, the group launched a sales promotion in the form of giving Dukang baijiu products from its existing inventory to distributors in FY2017 and 1QFY2018 in order to retain market share. Due to this sales promotion, there was a decline in sales as distributors were unable to digest their increased inventory in 2QFY2018.

There was also intensified liquor market competition in Henan province due to the entry of new products into the Henan market and the downward adjustment of first-tier high-end liquor prices further decreased the group's market share in Zhengzhou city and Luoyang city in Henan province, the People's Republic of China.

Finally, there was also a negative impact on the baijiu market due to a change in consumers' drinking trends and habits to red wine and beer and a large influx of imported beers and red wine in the domestic market.

This profit guidance is based on a preliminary review of the unaudited financial results of the group.

Further details of the group's performance will be released when the company announces its unaudited financial results for 2QFY2018 on or before Feb 14, 2018.