Dahua Jixian downgraded the rating of Dynasty Liquors (0828.HK) to sell (previous ratings were not shown), lowering the target price from HK$3.47 to HK$2.07. Dynasty Liquor's net profit in fiscal year 2010 increased 1.7% year-on-year to HK$159 million. However, excluding the impact of RMB 3.2% appreciation, Dynasty Liquor's profit growth rate actually declined by 1.3%. This profit level was 8.6% lower than Huajixian's expectations and 9.2% lower than market expectations. Dahua Jixian lowered Wangchao Liquor's net profit growth forecasts for FY2011 and FY2012 by 16.1% and 22.0%, respectively, to reflect the impact of low sales growth and declining profit margins.

Dahua said clearly that due to low revenue growth and declining profit margins, Dynasty Liquor's current price-earnings ratio should be lower than its average price-earnings ratio.

The stock closed yesterday at HK$2.73.