Treasury Wine Estates (TWE.AX) of Australia announced on Monday its optimistic outlook for rebuilding its presence in China, which led to a remarkable over 5% surge in its share prices.
This positive sentiment was ignited by recent signals from both Australia and China hinting at the potential removal of tariffs on Australian wine.
Australia’s government, in the process of mending economic relations with China, Asia’s largest economy, following a series of disputes, disclosed on Sunday that China had agreed to expedite the review of tariffs on Australian wine, a process expected to take up to five months.
Treasury Wine Estates, the world’s largest standalone winemaker, emphasized in a statement that, “Should tariffs be removed, these measures will be implemented sustainably and with the aim of growing the business in China.”
Previously, Treasury Wine Estates had generated a significant portion of its profits from China.
However, it faced substantial setbacks when Beijing imposed tariffs on Australian wine in 2021, following Australia’s call for an inquiry into the origins of COVID-19.
Goldman Sachs analysts also weighed in on the situation, stating, “If the tariffs are removed, we see this as a significant positive for the Australian wine export industry and specifically Treasury Wine.”
To rejuvenate its business in China, Treasury Wine Estates outlined several strategies.
These include relocating a portion of its Penfolds Luxury products from other markets back to China and rebuilding the distribution network for the Penfolds Australian entry-level luxury portfolios.
This announcement had an immediate impact on Treasury’s shares, with a surge of as much as 5.3%, making it one of the highest gainers on the Australian stock exchange on Monday.
It maintained a 2% increase even as the broader market index (.AXJO) experienced a 0.9% decline.
Treasury Wine Estates has also indicated its expectations for operating profit in the fiscal year ending in June 2024, anticipating a shift towards the second half of the year.
This reflects the company’s strategic approach to phase Penfolds shipments, allowing for flexibility in response to a potential future review of tariffs.