(Yicai Global) Oct. 26 -- Shares in China Resources Beer Holdings plunged as much as 9.2 percent today after the leading Chinese lager maker said it is splashing out CNY12.3 billion (USD1.7 billion) to purchase a majority stake in a Chinese distiller.

China Resources Beer’s share price [HKG:0291] was trading down 6 percent at HKD41.50 (USD5.30) as of 1.30 p.m. China time. Earlier in the day it sank to HKD40.

China Resources Beer will acquire a 55.2 percent stake in Guizhou Jinsha Jiaojiu Winery Industry, a producer of China’s favorite tipple, baijiu, which is a fiery clear grain-based liquor known for its high alcohol content, the Beijing-based company said in a filing to the Hong Kong bourse yesterday.

It is China Resources Beer’s biggest outlay on a non-beer asset and comes at a time when the stocks of Chinese distillers are falling. The purchase will be made by buying the stakes of two shareholders and through a cash injection, it added.

Now is the time to enter the liquor market, Chief Executive Hou Xiaohai told Yicai Global. The access threshold has come down significantly from the previous peak as market valuations are sliding. China Resources Beer remains bullish on baijiu, he added.

China Resources Beer has deep pockets and the acquisition of Jinsha Jiaojiu Winery is a cost-effective deal given the distiller’s nationwide distribution network, Cai Xuefei, an alcohol industry analyst told Yicai Global. It will also greatly help the brewer expand its non-beer segment.

Jinsha Jiaojiu Winery will operate as an independent entity after the takeover, Hou said. China Resources Beer will leverage the distiller's sales, supply chain and marketing channels to leverage its lager and other liquor brands. The firm is also a majority stake holder in another liquor maker in eastern Shandong province.

Beer and baijiu are in two different product categories so whether China Resources Beer can effectively manage both alcohol lines remains to be seen, Cai said.

China Resources Beer is not rushing to expand its baijiu business through more asset purchases, Hou said. The firm will focus on running the brands it already owns.

Founded in 2007, Jinsha Jiaojiu Winery has enjoyed fast growth in the last few years. Profit more than doubled last year from the year before to CNY1.3 billion (USD92.2 million), while revenue also more than doubled to CNY6.1 billion (USD837 million). In the first half, it raked in profit of CNY670 million (USD92.2 million).

Editors: Tang Shihua, Kim Taylor