'But only by expanding the retail network can we boost market share. We believe the company can maintain a high volume, albeit with a lower profit margin,' he added.

The health food retailer will set up two outlets, one in Wan Chai and the other in Ma On Shan by next month. Shops at other commercial spots, such as Tsim Sha Tsui and Causeway Bay, may also be set up.

The company's first health centre in Central, which opened in December to attract office workers, is expected to break even this year. It provides medical consultation services as well as a Chinese soup delivery service.

Mr Chow said he did not expect consumer spending to increase this year, but he believed the Chinese medicine industry would receive a boost after the Chinese takeover in 1997.

'At present, Chinese medicine is unfairly treated. For example, many companies do not accept certificates for sick leave from a doctor of traditional Chinese medicine. Neither do the medical insurance firms,' he said. 'This will probably change after 1997.' The company also hopes that its wholesale business in China, which is suffering cash-flow problems, will soon be back on track.

Louis Lo, who wholly owns the group's major shareholder, Grandpoint Profits, said the company was facing serious debt when the Chinese medicine company was taken over in November.

Tung Fong Hung also plans to set up a second packaging plant in Zhongshan, Guangzhou. About $20 million was planned for the investment, Mr Lo said.

Capital would come from the $31 million proceeds of a 66.37 million share placement in March.

The company's cash flow was further boosted by property sales worth about $100 million in the second half of this financial year.

Mr Lo said the properties sold were located in districts no longer prime spots for retail business. The proceeds would be redirected to the property market if there were 'good offers', he said.

The group was also considering other short-term financing activities, including raising capital for blue-chip companies, he added.