BERNSTEIN RESEARCH: As of Nov. 28th, imports of TWE wines into China were hit with 169% dumping deposits. With increased China clarity and the bad news in the price, we upgrade TWE to Outperform.
The consumer and customer appetite for high end Penfolds in China remains strong and we expect enterprising Chinese importers to satisfy that demand via parallel imports from Hong Kong and Vietnam in particular. We expect TWE volumes around Asia to spike, Other Asia margins to benefit and for parallel imports to mitigate c. 51% of est. China EBITS declines.
By early next year we expect TWE to be in a position to announce plans for a restructured China business. The biggest challenge they face is in structuring differential pricing to China customers vs the rest of the world in order to keep Chinese customers motivated while protecting their global pricing structure. We think this is manageable – retrospective rebates based on proven sale inside China and Penfolds labels in Putonghua perhaps!
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