HONG KONG: China Resources Enterprise Ltd, the local partner of SABMiller Plc, posted its biggest gains in a month in Hong Kong trading after the stock was upgraded by Nomura Holdings Inc and JPMorgan Chase & Co.

The company has interests in food processing and distribution, retailing, textiles and ports, and owns 51 percent of China Resources Snow Breweries Ltd, its venture with SABMiller.

Its shares climbed as much as 6.5 percent to HK$19.80, the biggest intraday gain since August 3, and closed HK$19.56.

JPMorgan raised its rating on China Resources' stock to "overweight" from "neutral" after the company's beverage profit more than doubled to HK$341 million ($44 million) in the first half. Nomura upgraded the company, whose venture with SABMiller makes the country's best-selling beer by volume, to "buy" on the basis of the company's plans to focus on retailing, food and beverages.

"Their results were impressive mainly because of strong earnings in the beverage division, particularly beer," Keith Li, a consumer analyst at CIMB-GK Securities (HK) Ltd. who has a "neutral" rating on the stock, said in a phone interview yesterday.

"The whole brewery operation's run by the joint venture partner and they have the expertise."

Chief Financial Officer Frank Lai yesterday said the company may sell "non-core" businesses, including its 51 percent stake in its venture with Esprit Holdings Ltd. Bonnie Ng, the spokeswoman for Esprit, declined to comment yesterday.

Esprit profit may be boosted by at least HK$168 million, with sales increased by HK$1.5 billion, if it buys its partner out of the venture, Daiwa Securities Group Inc analyst Peter Chu said. The clothier's annual net income may rise by 3 percent, he said in a note to clients late yesterday.

"China Resources is determined to transform into a branded consumer player via disposal of the textile, ports and Esprit franchise businesses," Nomura analyst Christine Peng said in a note to clients late yesterday. She raised her target price on China resources 23 percent to HK$22.89.

Snow beer's sales volume grew 24 percent to 3.578 million kiloliters the company said.

China Resources' beer division posted a 145 percent increase in profit to HK$257 million after sales grew 25 percent to HK$9.5 billion.

While lower raw material costs were the main reason behind the beverage division's earnings growth, "it's worth highlighting that with these figures, China Resources' beverage division outperformed Tsingtao," JPMorgan analyst Ebru Sener Kurumlu said in a note to clients.

Tsingtao Brewery Co last month posted a 68 percent jump in first-half profit to 639.8 million yuan ($94 million) while sales rose 15 percent to 9 billion yuan. Tsingtao is the second-biggest company of its kind on the mainland by sales volume.

The company's first-half net income fell 22 percent to HK$1.16 billion, it said yesterday.

CIMB-GK's Li said he remains "a bit cautious because China Resources' other businesses are pretty weak, particularly retail."

"Their return on equity is unbelievably low at 8 percent," Li added. "They said a few years ago they would focus on retail and consumer-related stuff but they still haven't generated more ROE."

Bloomberg News

(HK Edition 09/05/2009 page5)