China Force and chipmaker warn of profit squeeze
Two mainland companies that listed on the main board less than a year ago - edible oil manufacturer China Force Oil & Grains Industrial Holdings and contract chipmaker CSMC Technologies - issued surprise profit warnings yesterday.
China Force's announcement sent its share price tumbling 46 per cent to close at 49 cents. CSMC's price dropped 11 per cent to 40 cents following its warning.
China Force said losses incurred on soybean oil futures contracts would affect its interim results at the end of September.
The company raised $263 million to expand its mainland production capacity when it listed in Hong Kong in October last year with an initial offering price of $1.23 per share.
Its full-year results at the end of December last year were in line with profit forecasts of $103 million.
In May, China Force management said that profit margins for the company's products remained stable despite the increase in raw material costs for items such as soybean.
'The group has been materially and adversely affected by the extremely unfavourable market conditions,' the company said in a statement filed with the Hong Kong stock exchange.
China Force said it had entered into exchange traded futures contracts on the Chicago Board of Trade to avoid any price fluctuations in raw materials.
The company said it had been able to maintain a stable gross profit margin while the price of its end-product - refined soybean oil in China - and futures prices in Chicago were correlated.
However, since the end of February, soybean oil prices in China have dropped significantly while the futures prices have risen.
'The company results were further worsened by the unexpected loss from the futures contracts entered into by the group,' China Force said.
The company squared off almost all its futures contracts in February and April and realised a loss.
Meanwhile, contract chipmaker CSMC Technologies announced it would record a loss for the first half of the year due to flat orders and lower than average selling prices.
CSMC raised $310.5 million when it listed in August last year with an initial offering price of 50 cents per share.
The company recorded a profit of $88.46 million last year, an increase of 182 per cent on the previous year.
'Semiconductor Manufacturing International Corp, China's largest contract chipmaker also hinted it will have a loss in the first half, so small-scale CSMC Technologies' profit warning is fully expected,' a brokerage analyst said.