Hong Kong company reporting season

Want Want China posts 0.4pc rise in first half earnings amid weak economy

PUBLISHED : Tuesday, 23 August, 2016, 5:01pm
UPDATED : Tuesday, 23 August, 2016, 10:15pm

China’s economic downturn has bitten into the fortunes of Taiwan’s second richest man Tsai Eng-meng as his food behemoth Want Want China posted disappointing first half earnings, weighed down by lukewarm market sentiment and rainy weather.

Net income edged up 0.4 per cent year on year to 1.76 billion yuan while revenue slumped 12.8 per cent to 9.71 billion yuan, missing analysts estimates of 10.79 billion yuan in a Reuters poll.

“Due to the generally weak market, distributors and retailers maintained a conservative attitude and the inventory pressure of distributors continued to increase compared with that of the same period last year,”company chairman Tsai said in a statement.

“The unfavourable weather conditions also brought challenges to the group’s sales of popsicles and beverages,” he added.

Alice Leung, head of institutional research with KGI Securities, said the food giant’s business growth would remain under pressure in the second half given a lacklustre economy and the squeeze on Want Want’s market share in dairy products amid intensifying competition.

Acknowledging a bleak outlook for China’s instant food sector, Leung said “the launch of new yoghurt drinks and premium ultra-high temperature processing (UHT) milk in the second half should help the Taiwanese food giant secure a steady income stream”.

According to Forbes, Tsai, who built up the Want Want food empire from his father’s trading operation, saw his wealth diminish by US$2.2 billion just in the past year, down as much as US$4.5 from its peak hit in 2013.

With his current net worth estimated by Forbes at US$5.7 billion, Tsai has been overtaken by Terry Gou, chairman of electronics giant Hon Hai Precision, whose wealth ballooned to US$6.4 billion from US$6 billion within the past two months.

Separately, China Foods, a listed flagship of China’s largest food company Cofco, registered a staggering 441 per cent jump in net profit for the first six months of the year with its bottom line bolstered by a spin-off of its money losing confectionary business, despite lukewarm domestic demand.

The increasing competition in the food and beverage industry will continue to bring uncertainty to our business operations
Jiang Guojin, China Foods managing director

The food processing offshoot of the centrally-owned conglomerate booked first half net profit of HK$616.7 million, up from HK$114 million yuan a year earlier, while revenue slid 2 per cent to HK$14.59 billion.

Coming on the back of its parent Cofco’s wide-reaching overhaul to answer Beijing’s call for state-owned enterprise (SOE) reform, the Beijing-based firm’s upbeat earnings came after it disposed of its confectionery business that has contributed to steep losses in previous years.

“The increasing competition in the food and beverage industry will continue to bring uncertainty to our business operations,” Jiang Guojin, China Foods managing director, said in a statement.

The cooking oil, chocolate and wine producer is a major subsidiary of Cofco, which controls nine listed units that engage in businesses from dairy and grain trading to property and packaging.

Ahead of the results announcement, Ma Wenfeng, a senior analyst with Beijing Orient Agribusiness Consultant, told the Post: “The worst days are over for the grain and oil majors as commodity prices are bouncing back, but there are still challenges including weak demand and its incompetent corporate governance as a SOE.”

China Foods shares closed the morning session up 1.32 per cent on Tuesday to HK$3.08. The firm declared an interim dividend of 1.2 HK cents compared with none last year.

In July Cofco kicked off its strategic restructuring after merging with rival firm Chinatex as part of Beijing’s SOE reform in an effort to make the new company the world’s top three grain trader.