The Hong Kong share price of Huafeng Group Holdings rose 8 per cent yesterday, after the loss-making blanket maker announced it would acquire a mainland tea producer controlled by the family of Huafeng's chairman for HK$2.49 billion.
The company signed an agreement on Thursday to buy China Natural Tea Holdings, a Cayman Islands firm that owns tea plantations in Fujian province, Huafeng said.
Huafeng's founding chairman Cai Zhenrong beneficially owns 45.57 per cent of Natural Tea, while his brother Cai Zhenyao, Huafeng finance director, owns 13.07 per cent and his nephew Ng Shui Yu 9.07 per cent, said Huafeng. Cai Zhenrong owns 36.58 per cent of Huafeng, according to the Hong Kong stock exchange website.
The acquisition will benefit Huafeng, because Natural Tea has strong profitability, Huafeng said. "The diversification into the tea industry through the acquisition is expected to bring positive contributions to the company. The acquisition will allow the company to realise its diversification strategy by entering the tea industry, being a business with potential, so as to enhance its revenue sources," the company said.
Natural Tea's net profit achieved a compound annual growth rate of 45.5 per cent from 2009 to 2011, attaining a net profit of 194.2 million yuan (HK$242 million).
In comparison, Huafeng suffered a net loss of HK$190.8 million for the fiscal year ended September 30 and a net loss of HK$138.46 million in the previous year. Its revenue fell from HK$806.7 million in 2008 to HK$539.12 million in 2012.
"The company had been confronted with unfavourable operating challenges for the year ended 30 September 2011 arising from significant increase of raw material and purchase costs coupled with increasing competition. The company would proactively search for favourable merger and acquisitions and realise its business diversification strategy," Huafeng said.
Natural Tea owns 770 mu (51.3 hectares) of land in Fujian, of which 72 mu is used for tea cultivation and the rest is protected forest land.