Treasury Wine Estates rating cut as China market cools

Investment bank Goldman Sachs has said Treasury Wine Estates is too optimistic about China, as new Chinese customs figures show that growth in wine imports to the country has slowed in 2017.

Treasury Wine Estates’ share price slipped by nearly 5% on Monday 31 July after Goldman Sachs downgraded its stock to ‘sell’ from ‘neutral’. Treasury’s shares were still trading 26% higher than at this time last year.

‘In our view, Treasury is priced for unrealistically high volume growth in China,’ said Goldman analysts, ahead of Treasury’s full-year results announcement on 17 August. Analysts were forecasting up to 2019.

‘We see pressure on both price and margin in the Chinese market,’ analysts said.

Its comments came just a few days after the latest wine import figures from Chinese customs showed a slowdown in the growth of shipments from around the world so far in 2017.

Australia saw very strong growth in 2016 and China still imported 30% more Australian wine in the first six months of 2017 than in the first half of last year.

But there has been a 22% drop in the average bottle price of Australian wines arriving into China, showed the customs figures. Other nations, particularly France, also saw a gap between volume and value growth in the customs figures.

Sylvia Wu, editor of DecanterChina.com and who has been following the Chinese wine market for several years, said that this was partly driven by a shift towards more mainstream wine consumption in China and importers’ demands for lower-priced wines.

Lower tariffs on Australian wines entering China might also have contributed.

Australia has traditionally commanded one of the highest bottle prices for its wines in China, among the international set of wine producing countries looking to increase their foothold in the country.

Overall, Chinese customs figures released last week show that the total value of bottled wines entering China during the first six months of 2017 rose by 3.3% versus the same period of 2016. The volume of imports continued to grow, by 14% for the first half of 2017.

Imports recovered in the second quarter from a drop in the first three months of 2017.

But, the report shows that the growth has slowed down compared to first half of 2016, which saw a 22% increase in volume and 17.2% increase in value year-on-year.

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