Treasury Wine Estates (ASX:TWE): China’s 200% wine tariffs have been consigned to history, so is it now back to business as usual?

Poor Treasury Wine Estates (ASX:TWE) investors! After 3 and a half years of China’s 200% tariffs on Australian wine imports, they were scrapped in March 2024. It was about this time we last wrote about the company and we posed the question: So is it now back to business as usual for one of Australia’s top wineries, and only listed wine stock (since DW8 bit the dust)?

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Who is Treasury Wine Estates?

Treasury Wine Estates is a business that distributes Australian wines across the world, including yhe famous Penfolds portfolio. It relied on China significantly prior to the pandemic because the rise of the middle class and its spending power meant there was strong appetite for luxury items such as wine. Granted, Australia was not the only appealing wine provider, but it was advantaged compared to France or Italy given it is closer to China.

Unfortunately, tariffs implemented by the Chinese government in November 2020 ruined its business in China. We’re not talking 10-15% taxes…we’re talking 200% tariffs. Obviously this killed its business and the ideal scenario was for the tariffs to be removed. There were other markets in Asia for Australian wine, but none were as lucrative.

But on March 28 2024, just before the Easter break, Beijing announced the tariffs would be reduced to nil. So is it now back to business as usual? Investors hoped so, but they were wrong.

Remove the stone of China’s tariffs…attach the stone of Trump’s tariffs

One set of tariff worries were placed with another – one stone was unchained, another was attached. And even then, a significant amount of damage was done by China’s tariffs. We observed at the time that recovery would be slow, there had only been provisional plans for rebuilding and there was stiff competition in the Chinese market from European and American providers. The company ultimately decided to spend A$27.5m to buy a vineyard in China’s Ningxia region.

In FY24, the company managed to grow its revenue by 13.1% to A$2.7bn, although its profit fell by over 60% to $98.9m. In 1H25, investors punished the company because even though its revenue rose 20% and its underlying profit by 31%, there was a decline in its ‘Commercial and premium NSR declines’ which reflected softness in demand for wine at lower price points.

In early April, when the tariff chaos was unleashed on the market, the company told investors it wouldn’t be hit because the US was a small part of its business – at least the wine it exported there. The company also underwent a leadership transition where Tim Ford was replaced by Sam Fischer after a 5-year stint. And once of its US distributions opted to cease operations. Again, this was not expected to be a major impact, but it was the compounding effect of constant negative sentiment.

In FY25, the company made $436.9m NPAT, up 342% due to a lack of impairments seen in FY24 and its sales revenue grew 6% to $2.9bn. The company claimed its return to China was successful, it would now focus on luxury brands, and that it would deliver EBITS growth. EBITS is Earnings Before Interest, Tax, SGARA and Material Items for those wondering. TWE did not give specific guidance for the entire company, but promised ‘mid double-digit growth’ for Penfolds.

Adding insult to injury, it was demoted from the ASX 50 in September, thus promoting certain institutional selling.

It is good news for TWE, but does this mean it is now a buy?

We will stop short of making a judgement as to whether or not investors should buy or sell shares in Treasury Wine Estates given everything above. And we certainly won’t speculate as to whether or not other tariffs, will impact the stock.

It would be a bold bet to buy this stock. While we won’t deny this company could grow itself a presence in China once more, it won’t be anything like the pre-COVID days. Investors should keep that in mind.