Xinhua Far East Upgrades Kweichow Moutai Co., Ltd. from AA- to AA Issuer Rating; the Rating Outlook Remains Stable

Xinhua Far East Upgrades Kweichow Moutai Co., Ltd. from AA- to AA Issuer Rating; the Rating Outlook Remains Stable

June 30, 2006

    HONG KONG, June 30 /Xinhua-PRNewswire/ -- Xinhua Far
East China Ratings ("Xinhua Far East") today
upgraded the domestic currency issuer credit rating of
Kweichou Moutai Co., Ltd. ("Moutai" or "the
Company", SH A 600519) from AA- to AA. The rating
outlook remains stable.

    This upgrade was prompted by ongoing improvements in
the Company's financials in the context of a more favorable
operating environment for China's premium traditional
distilled liquor sector. The AA rating also reflects Xinhua
Far East's view on Moutai's leading market share,
considerable sales growth, strong brand loyalty and
unchallenged pricing power. However, factors which prevent
the Company from achieving an even higher rating include a
wider range of substitutes, a lack of product
diversification, a high degree of reliance on the
business-related market and comparatively weak brand
enhancement.

    The development of China's premium traditional
distilled liquor segment has been underpinned by China's
robust economy, improvements in average household income
and strong demand for high-end products. The positive
outlook for the segment is also buoyed by unchanged unit
taxes and lower ad-valorem taxes on liquor. With products
that hold monopolistic market positions and high brand
awareness, Moutai is primed to benefit from such
conditions. As of late, the Company has also successfully
implemented both product enhancements and pricing
modifications, fortifying its market position and boosting
its financial performance in the process.

    Moutai reported turnover of RMB3.93 billion in 2005, a
114% increase from 2002. This gain is attributable to the
Company's capacity expansion, high-end product placement
and price promotions in the Moutai series. It produced
15,954 tons of liquor in 2005, up 49.3% when compared with
2002. Sale of strong and mild drinks, both classified as
high-end, accounted for 85.1% of total revenue in 2005,
approximately 18 pct higher than its share in 2001.

    Moutai's gross margin remains stable, while its EBIT
margins have shown improvement over the past three years.
Its EBIT margin rose to 48% for FY05 and 49.4% for 1Q06
from 34.2% in FY02. 

    Further, Moutai's cash flow from operations rose
significantly to RMB1.69b in 2005, nearly four times the
sum in 2002. Although the Company has a 10,000-ton
expansion plan in the 11th Five-year Plan period
(2006-2010), Xinhua Far East expects this plan to be
carried out in stages, without bringing too much pressure
to bear on the Company or producing severe oversupply for
its specially-flavored drinks.

    Factors that cloud Moutai's future include falling
consumption levels of strong traditional liquor in China,
the Company's heavy dependence on the business market and
less notable brand enhancements in comparison to its more
established brand. Nevertheless, Xinhua Far East believes
that these factors are likely to play out over the
long-term, unlikely to materially impair the Company in the
near-term.

    Kweichou Moutai Co., Ltd. is a premium distilled liquor
maker in China. "Moutai", the brand umbrella for
its high-end products, has a long history and is among the
most valuable brands in China. Kweichou Moutai Co., Ltd. is
a constituent of the Xinhua/FTSE China 200 Index. As of
market close on June 29, 2006, its total market
capitalization and investable capitalization were RMB45,
397million and RMB13, 619million respectively. 

    For the rating report summary, please visit
http://www.xinhuafinance.com/creditrating.

    About Xinhua FTSE China 200 Index

    Xinhua FTSE China 200 Index is the large cap index in
the Xinhua FTSE China A Share Index Series and includes the
top 200 companies in China by market cap. It is designed as
a tradable index and is calculated in real-time every 15
seconds.  For daily data and further information, see
http://www.xinhuaftse.com.

    About Xinhua Far East China Ratings

    Xinhua Far East China Ratings (Xinhua Far East) is a
pioneering venture in China that aims to rank credit risks
among corporations in China. It is a strategic alliance
between Xinhua Finance (TSE Mothers: 9399), and Shanghai
Far East Credit Rating Co., Ltd. Shanghai Far East became a
Xinhua Finance partner company in 2003 and the first China
member of The Association of Credit Rating Agencies in Asia
in December 2003.

    Capitalizing on the synergy between Xinhua Finance and
Shanghai Far East, Xinhua Far East's rating methodology and
process blend unique local market knowledge with
international rating standards. Xinhua Far East is
committed to provide investors with independent, objective,
timely and forward-looking credit opinions on Chinese
companies. It aims to help investors differentiate the
credit risks among the corporations in China, thereby,
cultivating their awareness and promoting information
disclosures and transparency in China market. 

    For more information, see
http://www.xfn.com/creditrating.

    About Xinhua Finance Limited

    Xinhua Finance Limited is China's unchallenged leader
in financial information and media, and is listed on the
Mothers board of the Tokyo Stock Exchange (symbol: 9399)
(OTC ADRs: XHFNY). Bridging China's financial markets and
the world, Xinhua Finance serves financial institutions,
corporations and re-distributors through four focused and
complementary service lines: Indices, Ratings, Financial
News and Investor Relations.  Founded in November 1999, the
Company is headquartered in Shanghai with 21 news bureaus
and offices in 18 locations across Asia, Australia, North
America and Europe.  

    For more information, please visit
http://www.xinhuafinance.com. 

    About Shanghai Far East Credit Rating Co., Ltd

    Shanghai Far East Credit Rating Co., Ltd. is the first
and leading professional credit rating company with
comprehensive business coverage in China. It is an
independent agency established by the Shanghai Academy of
Social Sciences with the mission to develop internationally
accepted standards for capital market in China. The company
is a pioneer in conducting bond-rating business in China.
For years, it has been authorized by the Shanghai branch of
the PBOC to undertake loan certificate credit rating.

    Since establishment, it has rated over 1,000 corporate
long-term bonds and commercial papers, based on the
principles of objectivity, fairness and independence. The
company has also maintained over 50% market share in the
loan certificate-rating sector in Shanghai for three
consecutive years. With its strong local presence and
knowledge, it provides investors with unique and the most
insightful credit opinion. 

    For more information, see http://www.fareast-cr.com.

    For more information, please contact: 

    Hong Kong
     Joy Tsang
     Corporate & Investor Communications Director
     Xinhua Finance
     Tel:   [phone]
            [phone]
            [phone]
     Email: [e-mail]

    US
     Ms. Ishviene Arora
     Taylor Rafferty (IR/PR Contact in US)
     Tel:   [phone]
     Email: [e-mail]

SOURCE  Xinhua Far East China Ratings