China Resources posts 34.7pc fall in net profit

PUBLISHED : Saturday, 23 May, 2009, 12:00am
UPDATED : Saturday, 23 May, 2009, 12:00am

China Resources Enterprise, a consumer-focused conglomerate, reported a 34.74 per cent fall in net profit for the first quarter, hit by the slowing economy and deflation in the country.

The decline, although in line with analysts' expectations, sent its stock slipping as much as 4.42 per cent yesterday before closing down 2.46 per cent at HK$15.86.

The company, which operates supermarkets and produces Snow beer with SABMiller, said net profit for the three months to March was HK$417 million, down from HK$639 million a year earlier.

Underlying net profit, which excluded the after-tax effect of revaluation of investment properties and major disposals of non-core assets and investments, decreased 29 per cent. Turnover grew 8 per cent to HK$17.17 billion from HK$15.87 billion.

Except for the beverage business unit, which turned a profit of HK$17 million after losing HK$19 million a year earlier, China Resources' other four major business units - retail, food processing and distribution, textile as well as investment property - saw drops in profit or even losses.

'The global financial crisis has affected our businesses in different regions to various extents, leading to mixed performances among different divisions in the first quarter,' said managing director Chen Lang.

Retail, the largest contributor that accounted for 59.64 per cent of overall net profit, fell 13.43 per cent to HK$232 million. Same-store sales at its more than 2,600 supermarket stores in Hong Kong and on the mainland fell 3.6 per cent.

The first quarter was the most difficult time for mainland chain retailers in a decade, the China Chain Store & Franchise Association said.

The association said on average, net profit for mainland supermarket operators grew 5 per cent in the first quarter, against the 15 per cent growth in mainland retail sales.

Keith Li, an analyst at CIMB-GK Securities (HK), said unlike retailers for discretionary items such as department stores, supermarket operators could barely afford aggressive promotions to boost sales because of the already thin margins.

The situation was further worsened by consumers' expectation that retail prices would continue to fall. The consumer price index declined 0.6 per cent in the first quarter.

The company's management told analysts that same-store sales in April were also negative.

Mr Li said although the whole company's earnings outlook remained unclear, the beverage division would again be a bright spot this year.

Beer operations, which had 20.5 per cent growth in sales volume to 1.56 million kilolitres, were expected to have better results with the approach of the peak season.