China Agri shares sink 11% after H1 loss

China Oil & Foodstuffs Corp's products displayed at an international exhibition in Tianjin. [Photo/China Daily]

High soybean prices hit COFCO unit; loss-making pressure said to continue in H2

The announcement of a first-half loss, combined with a profit warning for the rest of the year, sent China Agri-industries Holdings Ltd's shares down 10.9 percent to HK$3.19 (41 cents) on Wednesday.

The company, a subsidiary of the State-owned conglomerate, China Oil & Foodstuffs Corp, reported a loss of HK$290.2 million, compared with a year-earlier profit of HK$706.8 million.

No interim dividend was proposed this year, compared with 3.1 HK cents per share in 2013.

The company also issued a profit warning in its statement to the stock exchange of Hong Kong.

"Given the prevailing market situation, the board of directors expects that the group will face loss-making pressure for the second half of 2014," said the statement issued on Wednesday.

The company said it lost money because of "relatively high" soybean prices during the first half.

"There are signs of a market recovery. We expect to reduce the loss in the second half. But a lot could happen in the rest of the year. We estimate there will be no substantial improvement in the gross profit margin this year," said Shi Bo, executive director and vice-president.

He said, however, that the company was not experiencing cash flow problems or other financial distress.

The gross profit margin contracted to 3.8 percent in the first half from 7.2 percent a year earlier.

Soybean prices were about 400 yuan ($64) to 500 yuan higher per metric ton in the first half than in the second half of last year, said Chang Muping, vice-president and deputy general manager of the oilseeds processing division of the company.

"But we should be able to consume the stocks built up in the first half by year-end," Chang said.

Yue Guojun, executive director and managing director, said: "Oilseeds processing accounts for 59 percent of our businesses, thus having a significant impact on earnings. In the future, we will increase the share of other businesses. We will also improve our purchasing plans and raise our operating efficiency to offset the impact of price changes in the soybean market."

Yue also said that because COFCO is one of the six central State-owned enterprises taking part in a reform program, China Agri-industries expects to invite private investors.

"We are waiting for detailed plans from the State-owned Assets Supervision and Administration Commission. There hasn't been any schedule yet. We believe the reform will drive growth for the company," he said.

Alvin Lao, an analyst at Emperor Securities Ltd in Hong Kong, said: "SOE reform will be good for the company in the long term, but at this moment, the gross profit margin from oilseeds processing is very low. We believe the performance of China Agri-industries will remain under pressure."

"We are not optimistic about the company's earning in the second half. The raw materials price is still booming, but the price of the end-product - soybean oil - is at a record low. For the time being, we don't see any improvement coming," he said.

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