CHINA Resources Enterprises is an emerging conglomerate whose time is fast approaching. But the company share, however, is not about to take off. Rather, this is going to be something of a Steady Eddy story with a slow re-rating coming as more institutions catch on to the company and the company's earnings become more diversified and rise in quality. On Friday it made headlines with the issue of a convertible bond to raise US$63 million. The company is one of a handful of solid mainland-linked listings whose parentage is blue chip and whose prospects are good. Other companies in the 1997 club may include Florens, part of the giant China Ocean Shipping Co (Cosco), and China Merchants Hai Hong, a China Merchants Group company. The China Resources group has more than 45 years history in Hong Kong. It is a giant in mainland investment in the territory, not to mention basic foods where it must handle a significant proportion of everything that moves on the territory's retail supermarket shelves. China Resources Holdings holds 98 per cent of live pig and cattle, 60 per cent of poultry, 50 per cent of eggs, 90 per cent of polyester and cloth, and 25 per cent of petrochemical imports into Hong Kong. It operates 13 department stores with an estimated gross floor area of 550,000 square feet, and which have been undergoing a major overhaul with higher quality goods, presentation and more aggressive promotion. It has the third largest supermarket chain in the territory with 37 outlets in Hong kong and 16 in Shenzhen. China Resources Enterprises is 56 per cent owned and is the principal listed vehicle of China Resources Holdings, incorporated in the territory in 1949 under the control of the mainland Ministry of Foreign Trade and Economic Co-operation. After an overhaul in 1983, the parent developed 200 subsidiaries with total assets of US$4 billion and turnover of US$7 billion, says Salomon. Current contractual investment lined up in the territory is more than HK$10 billion from banking, container terminals and hotels. One of the higher profile projects in its portfolio is in Route Three - with Sun Hung Kai Properties and Cheung Kong. Salomon was behind the convertible bond issue on Friday and, not surprisingly with that in mind, it is a bull on the stock. According to the investment bank, compound annual profit growth of 45 per cent is forecast to 1998. The Estimate Directory shows the company is expected to report $295.5 million attributable profit for the year ending December 31, 1995, up 40 per cent, with earnings per share up 25 cents. In 1996 it is expected to report another 40 per cent rise in profit to $363 million, with earnings per share at 30 cents, up 20 per cent. Salomon analyst Eddie Lau is forecasting $266 million this year with $383 million in 1996 and $654 million in 1997. Credit Lyonnais, which has made a point of following the company since China Resources took 51 per cent of the listing in 1992, is forecasting $289 million profit this year and $381 million next year. Revenues and profit contribution for the foreseeable future are going to be property dominated. Projects like the development of a large complex at Tsing Yi are going to provide the cash revenues the company needs to expand other businesses and pay for injections of parent businesses. Should China Resources achieve $389 million of profit attributable in 1996, it is estimated $83 million will come from Hong Kong property, $108 million will come from China property, $100 million will come from cold storage and godowns, $75 million will be from Ng Fung Hong and $21 million is expected from investment property, mostly in Hong Kong. The group has taken strategic slices of brewery interests in Dalian and has a venture with South African Breweries. So far, the contribution from this division is minute, but further investment is expected and the business is regarded as a long-term revenue and profits earner for the group. While property remains dominant, Salomon comments the acquisition of 26 per cent of Ng Fung Hong in the year signals the beginning of China Resources Enterprises' transformation into a major conglomerate, with support from its powerful parent and a strong cash flow from property sales. Analysts like the company for its strong, conservative, independent-minded management, many of whom have been educated or trained abroad. Also encouraging is that the management appears to have a strong regard for the interests of minority shareholders. On a prospective price earnings ratio of 10.39 times the stock has an undemanding valuation.