A handful of Aussie small cap wine exporters could benefit as China wine market soars
Food & Agriculture
Food & Agriculture
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Australian wine exports to China have grown by more than 50 per cent over the past year, opening opportunities for a handful of ASX-listed small cap wine stocks.
China now drinks $1 billion worth of Australian wine out of a total of $2.65 billion in global exports, according to figures released by Wine Australia this week.
The Middle Kingdom is now home to 48 million urban middle class drinkers of imported wine.
That has benefited large caps such as the $13 billion Treasury Wine Estates (ASX:TWE) which grew its Asian business by 48 per cent last half, selling some of China’s favourite Aussie wine brands such as Penfolds and Wolf Blass.
The question for speculative investors is whether wine juniors such as Australian Vintage (ASX:AVG) can emulate that success.
Australian Vintage — the $164 million maker McGuigans, Tempus Two and Nepenthe brands — has pivoted to the Asian market after a British focus was negatively impacted by the strength of the pound.
In the six months to December, Aus Vintage sales into Asia increased by 12 per cent — a slower-than-expected growth rate.
“We remain confident that the long-term outlook for sales into Asia look positive, but we must ensure that we manage the group and depletions and have the right structure,” Aus Vintage told investors.
“Australian Vintage continues to transform from a bulk wine company to a quality and well-respected wine business.”
Bottled wine exports increased by 15 per cent to $2.15 billion, while the average value of bulk wine rose 8 per cent to $1.05 per litre. Both are the highest levels since 2009, when the GFC hit exports.
The Chinese wine market is only expected to increase as Aussie producers benefit from falling tariffs in the China–Australia Free Trade Agreement.
By January next year, those tariffs will be completely removed. That’s already pushed China past the US as Australia’s second largest export market by volume — more than double the US by value.
Another China-focused small cap wine exporter Dawine (ASX:DW8) this week announced an effort to reduce costs by focusing on direct sales.
Initially Dawine launched a Tmall store, WeChat store and bilingual Chinese website and app — a move that has proven too costly for the $3 million market cap company.
“We continue to pursue strategic partners who have a track record of success in the China wine market and can open up distribution channels,” Dawine said.
“Dawine has established an end-to-end process of selling quality imported wine to the China market, which is a valuable asset of the company.”
Wholesale export of Aussie wine is a strategy that has paid off for exporters JAT Energy (ASX:JAT) and Byte Power Group (ASX:BPG).
While neither has wine exports as its primary revenue stream, the consistent demand for wine has buoyed BPG’s Asian Business segment – contributing 99.8 per cent of the total revenue for the group while it pursued its cryptocurrency exchange aspirations.