Yurun shares hit bottom on earnings

PUBLISHED : Tuesday, 27 September, 2011, 12:00am
UPDATED : Tuesday, 27 September, 2011, 12:00am


Shares in China Yurun Food Group yesterday dived to their lowest level since their listing in Hong Kong six years ago, after posting an unexpected earnings decline for the third quarter.

The shares of the mainland's second-largest meat processor plunged 31 per cent to close at HK$7.51, making it among the biggest losers on the Hang Seng Index yesterday.

In the past three months, China Yurun shares have fallen by 70 per cent.

Confidence in the Nanjing, Jiangsu province-based company was battered yesterday after the firm said in a filing that profits in the third quarter would decline from the same period a year ago.

It attributed the expected decline to the 'continual publication of negative media reports', 'the substantial increase in raw material costs' and 'the difficulty in transferring increased operation costs to consumers'.

'The Board expects that these unfavourable factors may continue to have an impact on the business of the Group in the fourth quarter this year,' the company said.

China Yurun has been plagued by a series of food safety-related scandals in the past few months.

In June, mainland media reported that pork supplied by one of Yurun's subsidiaries contained hormone and microbes.

In August, an official probe showed that the amount of bacteria in a type of packed roast duck sold by China Yurun exceeded government standards.

The latest scandal unfolded early this month as a hog supplied by China Yurun's subsidiary in Henan tested positive for clenbuterol, an illegal additive.

'What surprised us is not the profit decline forecast, but how fragile the company is in the face of such negative news,' said Sunny Kwok Yap-sing, an analyst with Guotai Junan Securities.

While the company had to spend more to cover the rising costs and in marketing its products, sluggish demand has made it hard to raise prices, Kwok said.

The mainland's meat processing industry has been under the media spotlight this year over the use of clenbuterol, which can induce the growth of lean meat when fed to pigs.