Bawang shares decline further

Shares of Bawang International (Group) Holdings slid 7.9 per cent yesterday on top of Wednesday's 15 per cent fall as investors shied away from the company whose hair products are said to contain high levels of a cancer-causing agent.

The stock closed at HK$4.65, a further decline from Wednesday's HK$5.05 before it suspended trading on a report by Next Magazine that Bawang shampoo contained high levels of the cancer-causing agent 1,4-Dioxane. Bawang said in a press statement on Wednesday its shampoo contains only 10 parts per million of 1,4-Dioxane, an amount that met United States, European and Hong Kong safety standards.

Analysts have mixed views about the company's prospects, but they said short-term sales would be affected due to the damage to the brand, which is promoted by celebrities Jackie Chan and Faye Wong.

Raymond Ching, an analyst at Bank of America Merrill Lynch, downgraded Bawang to 'underperform', saying sales momentum will slow immediately. Ching cut the company's target price to HK$4.40.

Morgan Stanley and HSBC Global Research looked at the issue more positively.

'We think the incident will not be a major risk, though it could hurt near-term sales and market sentiment,' HSBC analyst Herald van der Linde said. 'We also believe this incident is fundamentally different from food/beverage scandals.'

Analysts said they were concerned that Bawang had not promptly come up with a plan for how to revive the brand.

The company said in the Sino Weibo internet chat room that it had invited an independent laboratory to test the shampoo and the results would be announced.

Hong Kong and mainland retailers have not yet planned a recall of the products.

Bawang previously said it planned to extend into new businesses such as herbal drinks, herbal household cleaning products and even a herb farm.