CRE feels effect of economic slowdown

The mainland retail and brewery giant reports 30.5 per cent lower profit of HK$356 million in first-quarter results that raise market concern

PUBLISHED : Tuesday, 27 May, 2014, 1:34am
UPDATED : Tuesday, 27 May, 2014, 1:34am

China Resources Enterprise, the retail and brewery giant that makes the country's best-selling beer, said net profit sank 30.5 per cent in the first quarter due to a "slowdown" in the economy.

"The central government strictly enforced frugality, which affected the sales of certain high-value commodities," CRE said in a filing to the stock exchange.

Net profit dropped to HK$356 million from HK$512 million a year earlier, while revenue rose 15.7 per cent to HK$41.8 billion.

Besides its beer business under the "Snow" brand, CRE also has retail, beer, food and beverage operations. The retail segment contributed two-thirds of its revenue.

"With the rapid growth of e-commerce, some consumers engaged in online shopping during the Lunar New Year," CRE said.

The company runs more than 4,600 stores, of which 83 per cent are self-operated while the rest are franchised.

It recorded a 0.4 per cent year-on-year drop in same-store sales in the quarter.

Phillip Capital Management director Louis Wong Wai-kit said it was easy to blame slow economic growth but he believed the company's problem lay in its execution.

Wong said other similar-sized companies in the same business operated under the same macroeconomic situation but still reported much better results.

CRE's retail business posted quarterly revenue of HK$28.1 billion, up 8.3 per cent year on year, but profit dropped 10.3 per cent to HK$471 million.

To enlarge market share, the company will continue to speed up expansion into third and fourth-tier cities and rural areas.

Food business revenue jumped 62 per cent to HK$3.9 billion but the segment showed a net loss of HK$50 million, against a profit of HK$57 million in the same period last year.

CRE said the loss was due to the transition in rice distribution and other new businesses, which incurred high marketing expenses.

"This is not good," Wong said of the fall in profit of the two divisions where revenue rose.

He said people could compare CRE's retail business with Sun Art Retail Group, a mainland hypermarket operator that reported revenue of 27.8 billion yuan for the first quarter. "The quarterly revenue is quite close, but the profit of Sun Art was 1.2 billion yuan."

Wong also compared CRE's beer business with rival Tsingtao Brewery. CRE's beer revenue was HK$7.9 billion, up 20.3 per cent year on year, while profit was HK$6 million, against a HK$23 million loss a year earlier.

Tsingtao's quarterly revenue was 7.4 billion yuan, close to CRE's beer business, but profit was 585.7 million yuan.

Chen Zibo, an analyst at Societe Generale Ji-Asia, said the retail segment was a business vulnerable to the macroeconomic environment.