Juice firms face overcapacity
Profits from China apple concentrate production risk being squeezed as leading players pursue expansion, analysts warn
China's three biggest apple juice concentrate makers - China Haisheng Juice Holdings, Yantai North Andre Juice and Zhonglu Fruit Juice - face the danger of overcapacity that will hit profits this year, analysts say.
Haisheng's net profit grew 13.6 per cent to 122.69 million yuan last year while turnover rose 18.8 per cent to 653.95 million yuan, beating KGI's forecast of 118 million yuan profit and 626 million yuan turnover.
The firm raised its annual production capacity for juice concentrate by 50,000 tonnes to 205,000 tonnes when its new plant in Shanxi province began operations in the fourth quarter of last year.
'By our conservative estimates, our actual production will be at least 150,000 tonnes this year,' Haisheng co-founder and chairman Gao Liang said.
Last year, Haisheng produced 115,000 tonnes and sold 105,000 tonnes.
Meanwhile, Growth Enterprise Market-listed Andre Juice planned to increase its production capacity to 250,000 tonnes next year from 180,000 tonnes now, while Shanghai-listed Zhonglu expanded its capacity more than 55 per cent to 150,000 tonnes over the past year, wrote Vivia Tong in a KGI Securities report.
'Aggregate production capacity at China's three leading apple juice concentrate makers is equal to China's total apple juice exports for the first 10 months of [last year],' Ms Tong said. 'This implies an oncoming overcapacity in the industry, and we have cut our net profit forecast [for Haisheng this year] to 144 million yuan from 179 million yuan and to 152 million yuan from 199 million yuan for 2007 to reflect this.'
China is the world's biggest producer of apple juice concentrate, according to the US Department of Agriculture.
The mainland's share of global production had jumped to 43.28 per cent in 2004 from 17.57 per cent in 2000, according to the department.
Ms Tong warned of an impending overcapacity problem.
'If the top three Chinese apple juice concentrate firms keep expanding, overcapacity will be a problem in two to three years, but not now,' she said.
Haisheng had no plans to expand production capacity this year, executive director You Yong said.
However, a Shanghai analyst said: 'There was already overcapacity last year, when all the top three Chinese producers had inventories.'
In February, Andre said it had an inventory of 80,000 tonnes.
The Shanghai analyst added: 'The top three Chinese producers have more apple juice concentrate capacity chasing the same number of apples. Apple prices will go up. All the top three companies' profit margins will be squeezed this year. There is a likelihood of lower absolute profits this year.'
