China Resources says business under pressure on weak economy

BEIJING

China Resources Enterprise Ltd. (291), the government-backed partner of SABMiller Plc. (SAB), said its consumer goods business will be under pressure on weak global economy after reporting a decline in profit before onetime gains.

Profit excluding one-time gains dropped 2.1 percent to HK$668 million ($86 million) in the third quarter ended Sept. 30, the company said in a statement to Hong Kong's stock exchange today. Sales climbed 11 percent to HK$34.2 billion.

Poor global economic environment, slower economic growth in the world's most populous country and rising labor costs because of an increase in minimum wages across China have impacted the company, China Resources said in the statement. Consumer goods business in the near term will remain under pressure, it said. China's gross domestic product slowed to 7.4 percent in the third quarter, the seventh straight deceleration.

China Resources faces "tough" challenges ahead as it is under cost pressure and there is uncertainty in the global economy, which will continue to impact the company's profit for the rest of the year, said Jacqueline Ko, an analyst at Kim Eng Securities (HK) Ltd. She has a hold rating on the stock. China Resources, whose other businesses include beverages and food processing and distribution, fell 2 percent to HK$25.7 in Hong Kong trading, the biggest decline since Nov. 8. The stock has lost 3.6 percent this year, compared with the 16.8 percent gain in the city's benchmark Hang Seng Index.

China Resources's retail operations had $1.5 billion net gains on disposal of non-core investments and on valuation surplus on investment properties in the nine months ended Sept. 30, compared with gains of HK$633 million a year earlier. Same-store sales at the retail operations rose 4.6 percent in the first nine months of the year, compared with a 5.7 percent increase in the first six months of this year.

Revenue at the beer business fell 1.3 percent to HK$9.15 billion during the quarter as rainy weather across the regions where the company has dominated market share limited sales volume growth in the first nine months of the year, China Resources said. Its venture with SABMiller sells the No. 1 Snow beer brand in China with a 22 percent market share last year, according to Euromonitor International, a London-based researcher.

Retail accounted for 64 percent of total sales during the nine-month period, while beer contributed 24 percent.

Net income rose 27 percent to HK$1.14 billion boosted by new store openings and contribution from the newly acquired Jiangxi Hongkelong Department Store Investment Co., the company said. "China Resources will focus on growing scale in its retail business in the next few years," said Vivian Liu, a Shanghai- based analyst at Sinopac Securities Asia Ltd. Even so, the money it spends on adding new stores and marketing may eat up profits, she said.