Taxing times for mainland supermarket chain

PUBLISHED : Thursday, 17 May, 2012, 12:00am
UPDATED : Thursday, 17 May, 2012, 12:00am


China Resources Enterprise, which runs 4,000 supermarkets and breweries on the mainland, warned of a challenging outlook after reporting dismal quarterly results.

Announcing that net profit fell 15.2 per cent to HK$560 million, it said labour and fuel costs had gone up so much that the group had to swallow some of the increases, which eroded the profit margin of all its business divisions.

The disappointing quarterly results drove its shares down HK$1.90, or 6.79 per cent, to HK$26.05, making it the worst performer among the blue chips. The key Hang Seng index fell 3.1 per cent.

Lyncean Securities managing director Francis Lun Sheung-nim said CRE, being one of the retail stocks with heavy exposure to the mainland market, was being weighed down by the economic slowdown.

'The CRE share price reflects the slowdown on the mainland,' Lun said. 'Retailing is not an everlasting growth story even though it's a robust market.'

Mizuho Securities has pared its growth projection for the economy to 8.3 per cent from 8.6 per cent. Last year, the economy grew 9.2 per cent.

In the first three months of this year, the 4,000-strong retail portfolio, which consists of CR Vanguard and Suguo supermarkets, and Pacific Coffee and Vivo beauty and healthcare stores, saw underlying profit rise 5.3 per cent to HK$560 million, or 95 per cent of the group's total. The retail operations saw a 27 per cent rise in turnover to HK$24.15 billion.

Higher labour costs eroded the net profit margin to 2.31 per cent from the earlier 2.79 per cent.

China Resources Enterprise chief executive Chen Lang said food prices remained high and consumer sentiment was weak despite a slight decline in inflation.

The beer division, which produces the Snow brand, plunged into a HK$33 million loss from a HK$20 million profit as a result of higher wages and marketing expenses and punishing competition. Chen said the beer division was seeking acquisitions to expand its market share.

The net profit margin of CRE's food division, known as CR Ng Fung, was hit hardest - down to 2.2 per cent from 5.03 per cent in the same quarter last year. Profit, excluding non-recurring items, dropped by half to HK$57 million as turnover fell 14 per cent to HK$2.58 billion.


Last year, urban retail sales rose this much to 15.7 trillion yuan, while rural retail sales climbed 16.7 per cent to hit 2.4 trillion yuan