Dynasty Wines says cautious on results, optimistic

HONG KONG Wed Nov 16, 2011 5:08am EST

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HONG KONG (Reuters) - Dynasty Fine Wines Group Ltd (0828.HK), in which French spirits group Remy Cointreau SA (RCOP.PA) owns a 26.96 percent stake, said it is cautious on full-year earnings and for the first half of 2012 as the Chinese wine maker reforms its sales channels.

Profit margins were expected to have improved in the second half of 2011 as the company adjusted its product mix to include more premium wine products, Executive Director Yaqiang Huang told Reuters during the Reuters China Investment Summit.

"High-end products contribute 10-15 percent of the our sales. That will rise to 20 percent in 1-2 years," Huang told the Summit on Wednesday.

Low-end products were those with an ex-winery selling price of 20 yuan ($3.15) per bottle. High-end products were those above 100 yuan per bottle, Huang said.

Dynasty Fine Wines, in which Tianjin municipal government-backed conglomerate Tianjin Development Holdings Ltd (0882.HK) holds a controlling 44.7 percent stake, plans to set up 100 specialty stores in 2011.

"We now have 50-60 stores," Huang said. "We are on track to achieve this goal."

He forecast that China would see about 20 percent growth in wine sales volume in 2012 and 15 percent in value terms. Sales volume for 2011 was estimated at 2 million tonnes, he added.

Dynasty Fine Wines posted a 54 percent drop in first-half net profit and flat growth in revenue as it reformed its sales and distribution model to improve efficiency. The company sold 30.9 million bottles of wine during the first half.

It said overall gross profit margin declined to 42 percent in the first half, from 50 percent as costs of raw materials and manufacturing overheads increased.

COMPETITION IN LOW-END TO MID-RANGE MARKET

While financial turmoil in Europe and other regions is depressing consumer sentiment, wine makers anticipate rising demand from emerging economies, in particular China.

Treasury Wine Estates Ltd (TWE.AX), the wine business spun-off by Foster's Group Ltd FGL.AX and the world's second-largest wine company, has said it aims to grow in China with sales of its premium Penfolds brand.

"The competitive edge of imported wines are their quality and brand," Huang said. "Right now, competition in China is in distribution channels. In view of our existing (sales) network in the mainland, we definitely have an advantage."

Dynasty, which competes with China Food Ltd's (0506.HK) Great Wall Wine in China, sells premium domestic wines and wines imported from France, Germany, Italy and the United States in mainland China.

Chinese demand for imported wine remains strong, but the country is now among the top five grape growers in the world. Most of China's wine is sold in the domestic market and the vast majority of output remains less than impressive -- thin, acid and a bit astringent, according to wine expert Jancis Robinson.

"The challenge is how to keep up with customer satisfaction. More effort is needed to promote products and build a reasonable customer base," Huang said.

Shares of Dynasty Fine Wines, listed in 2005, have fallen about 51 percent so far in 2011, compared with an about 18 percent drop in the benchmark Hang Seng Index .HSI.

(For summit blog: blogs.reuters.com/summits/)

(Editing by Chris Lewis)

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