Liquor firm Silver Base in the spotlight after chairman's share sales
Liquor distributor blames government rules and slowing economy for revenue plunge, but critics are not convinced
Liang Guoxing, chairman of Silver Base Group Holdings, has left more questions than answers about the poor performance of one of the mainland's largest distributors of Chinese liquor.
While reporting a disappointing set of interim results - a steep drop in revenue and net loss in the six months to September 30 - the company has seen its major shareholders, including Liang and property tycoon Cheng Yu-tung, offload their shareholdings.
Liang blamed the 85.4 per cent drop in his company's revenue on the slowing Chinese economy and the central government's restriction on officials using public funds to buy pricey alcohol, including the fiery tipple distilled from grains known as baijiu - or white liquor.
Silver Base is the biggest global distributor of Wuliangye, one of China's two leading baijiu brands, along with Moutai.
Vivian Liu, an analyst with SinoPac Securities, said the slowing Chinese economy this year has caused the mainland liquor market to soften, leading to high inventory.
But Silver Base appears to have been hit particularly hard and some analysts aren't buying Liang's line.
One critic, who spoke on the condition of anonymity, noted that Wuliangye Yibin, the Shenzhen-listed producer of Wuliangye liquor, posted excellent third-quarter results.
"The diverse performance between Wuliangye and Silver Base is difficult to explain. That suggests the problem is company specific," said the analyst.
"The explanation of government restriction on liquor is not sufficient. It cannot contribute to such a huge revenue drop by Silver Base," he said.
Wuliangye Yibin's turnover surged 20 per cent to 6.08 billion yuan (HK$7.56 billion) in the third quarter, while its net profit jumped 89 per cent to 2.76 billion yuan. In contrast, Silver Base's sales plunged to HK$235.1 million in the fiscal first half, and it swung to a net loss of HK$177.1 million from a net profit of HK$407.1 million the year earlier period.
However, during the fiscal half various baijiu brands were found to contain usually high levels of chemicals called plasticisers. While there are no reports yet of people falling sick as a result of drinking the baijiu, the negative press could have had a detrimental impact on sales.
From March 31 to September 30, Silver Base's inventory soared nearly 35 per cent to HK$880.6 million, while its bills payable leapt 80.5 per cent to HK$314.4 million.
Although Silver Base's trade receivables dropped 14.7 per cent to HK$1.23 billion, the level remains high, made worse by its sharp interim revenue drop, said the analyst.
"We don't like companies with high accounts receivable. Its cash position has deteriorated. The company's financial health has deteriorated."
Silver Base's cash decreased by 36.4 per cent from HK$109.78 million on March 31 to HK$69.84 million on September 30.
A Silver Base spokeswoman said her company's results cannot be compared with Wuliangye Yibin's, because the latter is a liquor producer not a distributor. She added that the company is confident of recovering its bills receivable, due to its distributors' strong financial health.
From February 21 to October 11, Liang cut his stake in Silver Base from 64.6 per cent to 52.67 per cent in several transactions, according to the Hong Kong stock exchange website. On October 11, he sold 67.5 million shares at HK$3.22 each. Liang intends to maintain a majority shareholding in Silver Base, said the company's spokeswoman.
Meanwhile, Cheng , the former chairman of Hong Kong-listed conglomerate New World Development, halved his stake in Silver Base from 8 per cent on June 28 to less than 4 per cent on November 19, the exchange website said.
In contrast, Liu Yang, chairwoman of Atlantis Investment Management, increased her stake in Silver Base from 5 per cent on September 7 to 13.58 per cent on November 22. The high-profile mainland fund manager oversees about US$3 billion of investments.
Silver Base's share price edged up 0.4 per cent to HK$2.36 yesterday from HK$2.35 on Wednesday. However, its share price has plunged 31 per cent from HK$3.42 on November 5.