What's new

We recently discussed with the management in Shaoxing HQ andvisited the 40,000kl mid/high-end wine project in Hutang. Wealso noticed visible trend for consumption upgrading in ourfieldtrips to the company's mature markets in South Jiangsu andShaoxing.

Comments

To consolidate yellow rice wine sector via M&A;advantage of private ownership highlighted.

Cost advantage brought by high automation rate. As aresult, Kuaijishan recorded the sector's highest gross margin andnet margin at 44.2%/12.4% respectively in 2015. It also setprices close to its rivals.

Consumption upgrading in Zhejiang and South Jiangsu.

Market cultivation surrounding Zhejiang.

Valuation and recommendation

We slightly adjust 2016/17e revenue forecast by -0.3%/+0.9%to Rmb1.081bn/Rmb1.342bn; net profit +0.9%/+5.9% toRmb144mn/Rmb202mn. Maintain BUY and TP of Rmb19.5 basedon 3.17x 2017e P/B.

Risks

Excessive price hike; product growth disappoints.