Trumpy Dragon...Lets hope everything goes according to plan....$0.75

After a very hectic week, I really do not have the energy to go into too much detail. I have liked Trumpy as I love to call it for some time.

Why? I think that there is nothing better than vice to invest in. One of the core tenets of value investing is to find a business that you would start yourself if you had enough capital. So as a big fan of the vice business, I want to introduce to you my favorite....Alcohol.

Ok Trumpy has had a good run up and its up 170% for the year. Impressive? I think so too. Is it too high? I think that it may be pricing in some optimism. Do I like it? I LOVE IT!

Lets see. First of all, this is a Baijiu distiller, holding 6% of market share in Hebei which apparently houses China's most notorious alcoholics. Secondly, if you are an Emil Chau fan, you have to buy it, cos apparently he drinks it to sooth his throat.

Ok jokes aside. Many market watchers are attributing this move up in Trumpy to the acquisition of the 2 Dukang distilleries. They are definitely wrong on that. Trumpy currently trades at close to 20 times historical P/E. It is not expensive because its trading at a significant discount to all its Chinese listed peers. The average P/E for Chinese Distillers is current 36 times. So are we expensive? I think not...

Now lets move to the acquisitions...first the shocker, both distillers have gone through bankruptcy over the past 8 years. Both were poorly managed. So there you are...the key risk.
This is information that is not going to be revealed by analysts.

Now to the good part. This acquisition is going to more than double Trumpy's capacity. Both brands are very famous and it allows Trumpy to break into the rest of the chinese market. Currently, the full year revenue for Trumpy is RMB700 million. The largest listed Baijiu distiller is Sichuan Swellfun and it's revenue is RMB 1.5 billion. If Trumpy is able to generate more revenue from it's doubled up capacity....it will be comparable to Swellfun. How much do you think Trumpy is worth? If it is going to double its revenue, double their profits and trade at 30 odd times P/E?

The acquisition is at book value. All the listed distillers are trading at 3 to 4 times book value so this can be considered a bargain, but combining the 3 entities is going to be a real challenge to the management.

I guess I have given you a picture of how things can be great if everything goes according to plan. Of course the risks are also high.

Lastly....Baijiu is most popular liquor in China....so do you think vice is a good business?

All hail Trumpy! Cross our fingers and hope things work out.

Have a good weekend ahead!

Best,

SVI