China Agri earnings boosted by oilseeds
China Agri-Industries, one of the largest state-owned oil and grain companies, announced a 39 per cent jump in net profit as revenue from its oilseed businesses increased sharply amid robust demand and suspension of government price caps.
Net earnings rose from HK$1.70 billion to HK$2.37 billion in 2011. Its major profit driver was the oilseeds business, which accounted for 68 per cent of revenues. Operating profit in this sector jumped 13 times from HK$239 million to HK$3.32 billion, while its gross profit margin expanded more than three times from 1.7 per cent to 6.1 per cent.
The explosive growth was caused by an increase in production capacities and product prices. The central government lifted the price cap on edible oils last August.
However, the company is still in debt. At the end of 2011 its net gearing ratio was 108 per cent, up from 96 per cent in 2010. The net debt of the group is now HK$23.7 billion.
Shi Bo, vice-president of the company, said the gearing ratio of the company was acceptable and it was important for the company to keep up its expansion plans as food security was the priority. It has earmarked HK$4.4 billion for capital expenditure in 2012, including investing HK$455 million on feed processing.
Shi said cash flow was healthy. It generated HK$1.21 billion of net cash inflow from operations and has HK$9.19 billion of cash and bank deposits.
China Agri-Industries also announced the resignation of its chairman, Ning Gaoning, 53. Ning was appointed to the post in 2007, a few years after he became chairman of its state-owned parent company, China National Cereals, Oils and Foodstuffs Corporation (Cofco), the largest food processing, manufacturer and trader in China. He remains Cofco chairman and will serve as a non-executive director of China Agri-Industries. Ning is succeeded by Yu Xubo, previously managing director and an executive director.
China Agri-Industries shares rose 2.2 per cent to close at HK$5.46, outperforming the Hang Seng, which slipped 0.8 per cent to 20885.4.
Analysts were mixed about the prospects for China Agri-Industries, which is faced with robust growth in demand but constrained by rising production costs and the overhang of government food price policies.
JP Morgan downgraded the company from overweight to neutral two weeks ago as oilseed margins could be squeezed by higher feedstock costs, while its rice business faces more competition from rival Wilmar.