Aug. 1 (NBD) -- Beijing Shunxin Agriculture Co (Shunxin, 000860.SZ), which mainly sells cheap hard liquor, has become the best-performing distiller in the domestic stock market.

Niulanshan Erguotou, a core baijiu product offered by the distiller, is sold at only about one 277th of the price of Moutai Flying Fairy 53% 500ml of China's most valuable wine maker Kweichow Moutai. However, as of July 30, the stock of Shunxin has grown by 135.76 percent, 28 times the growth of Kweichow Moutai.

It has to be noted that Shunxin stock was largely boosted by its robust Q1 results. According to company filing, the growth rate of its Q1 net profit was 92.15 percent and the first-half net profit is expected to grow 70 percent to 100 percent.

However, the gross margin of Shunxin's baijiu business only stood at 55 percent in 2017, far below Moutai's 88.5 percent and Wuliangye's 68.5 percent.

Lyu Chang, an analyst at securities research institute SWS Research, noted in a research report that raw materials and packaging are the major costs for the baijiu business. In 2017, packaging material and glass costs increased 21 percent and 17 percent, respectively, driving down Niulanshan Erguotou's gross margin.

However, many analysts are still bullish on Shunxi.

Fan Jinsong, an analyst at Zhongtai Securities said in a note this month that Shunxin's baijiu business remains undervalued as it has just 5 percent of the domestic low-end liquor market and its liquor sales are expected to soar to 10 billion yuan (1.5 billion U.S. dollars) by 2019 from 6.45 billion yuan (944.5 million U.S. dollars) in 2017. 

Email: tanyuhan@nbd.com.cn