New Morningstar Analyst Report for Sichuan Swellfun Co., Ltd.

As a renowned Chinese rich-flavor spirits brand, Sichuan Swellfun has established a solid presence in the Chinese premium white spirits market. However, its brand reputation lags that of Moutai and Wuliangye. Since Swellfun's launch in 2000, the company has faced multiple challenges, such as changes in government policies, product mixes and shareholder structure. Between 2000 and 2005, Sichuan Swellfun’s sales revenue posted year-over-year declines, but growth returned in 2005, driven by surging white spirits demand and Swellfun's growing brand reputation. However, in 2009, sales revenue had notched only a 30% increase versus ten years earlier. This compares to 300% growth in competitor Wuliangye’s sales during the same period. We believe the company's short-term outlook remains murky given the magnitude of the competitive environment. Over the medium to long term, Sichuan Swellfun's outlook will hinge on whether its performance can improve after Diageo DEO assumes a controlling interest, subject to the Chinese government’s approval. Until the unknowns regarding Sichuan Swellfun's shareholder structure are resolved, we remain conservative on the company's growth outlook.