Dah Chong Hong seeks to remake business to reverse profit slump
Hong Kong’s leading food retailer and importer of Bentley and Infiniti cars will depend on acquisitions, a rebalancing of its business and expansion into Southeast Asia to reverse its earnings slump, its chairman said.
Dah Chong Hong Holdings Ltd, one of Hong Kong’s leading food retailers and importer of motor vehicles, will unveil a strategic change of direction of its mainstay business, as it’s poised to report its sixth consecutive year of declining profits.
Net income is likely to fall 23 per cent to HK$438 million in 2016, on the back of a 2.4 per cent increase in revenue, according to a Bloomberg survey
The company will seek acquisitions, create a better balance between its motor and consumer operations, and expand into new business including health care, according to the chairman’s letter to shareholders obtained by the South China Morning Post.
“The world is changing, but one constant holds true -- to thrive, you must listen to all of your stakeholders and progress with them,” chairman Zhang Jijing said in his letter. “The pace of change around us has accelerated, and we need to match that pace to ensure we are aligned with the new normal of today’s market.”
Dah Chong Hong, which last year paid US$350 million to buy Li & Fung’s Asia consumer and health care distribution business, will continue to seek fresh acquisition and forge partnerships with the appropriate “product mix and footprint” t o expand its business, Zhang said.
The importer of Bentley, Audi and Infiniti vehicles relies on motor vehicles for more than a third of its annual revenue. It will take steps to create a better balance between its transport and consumer products business, Dah Chong Hong said.
Its LF Asia purchase added a more diversified product line and an established portfolio in consumer health care, a trend that the company will continue to explore, Zhang said.
Heath care is a fast-growing industry in mainland China because of the country’s ageing population, the improved heath care system and increased disposable income, the company said.
Dah Chong Hong, which gets 41 per cent of annual sales from the Greater China region, also sees great potential in diversifying its income source to Southeast Asia.
“The integration of LF Asia gave us an immediate foothold in this buoyant market and there are opportunities for further growth,” Zhang said.
“Having a presence in locations that have served us well in the past may no longer be optimal,” Zhang said. “This could be mean departing certain locations and investing in others.”
In the letter, Zhang also he will manage the brands, identifying the brands that promise higher growth and replacing those now yielding low returns.
Dah Chong Hong was founded in 1949 as a trading company. It was acquired by Chinese conglomerate Citic Pacific in 1992, and taken private. After renaming it, the company was listed again on the Hong Kong bourse in 2007 under its current name.
The company’s chairman Zhang, 61, is also chairman of Citic Pacific China Holdings, and vice president of Citic Ltd.
Dah Chong Hong’s net income has declined six years in a row, from HK$1.32 billion in 2011 to a third last year. The company’s first half net income fell 21.4 per cent last year to HK$220 million.
The company’s shares closed Monday unchanged at HK$3.21. The stock has risen 2.6 per cent in a year.