As China’s leaders meet this week for the annual National People’s Congress, the ongoing reform and recovery of China’s capital markets will be watched closely by investors in the fast growing economy. A recovery in China’s stock markets appears to have come at the right time for the country’s ambitious aquaculture and seafood processing firms, aiming to raise funds for expansion.
Listed in Shanghai, Dahu Aquaculture Co. recently sought to raise CNY 300 million (USD 48 million, EUR 37 million) in new equity. The firm has put the new round of fundraising on hold until its 2012 annual report is published, according to regulations. The firm has said it will use the cash to expand its product line, which currently includes freshwater fish like carp, chub and bream. The firm also has subsidiaries producing rice wine as well as pearls and aquatic-based pharmaceuticals. Dahu’s share price traded at CNY 6.41 (USD 1.03, EUR 0.79) early this week, down from a 52-week high of CNY 8.97 (USD 1.44, EUR 1.10) a share.
An appreciating currency, as well as rising labor and logistics costs, are key challenges quoted by Chinese exporters, including aquaculture and seafood processing firms. However investors are keen to invest in Chinese firms given that the World Bank and HSBC have predicted GDP growth to recover to 8.4 percent and 8.3 percent respectively in 2013 — up from 7.8 percent in 2012. China’s benchmark Shanghai Composite Index has been improving in the past year due in large part to government allowing new sources of investment into the exchange.
The upward trend will continue, according to Liu Yang, an analyst at Huatai Securities. He points to easing monetary conditions (funneling cash for investment) as well as bigger quotas allowed to foreign investors along with a more positive Chinese economic outlook. The government’s ability to channel state cash, such as social security funds, into China’s two stock exchanges is another potential booster.
Investors have been drawn to two aquatic feed-related stocks. Guangdong-based Haid Group, listed on the Shenzhen exchange (China’s board for high-growth and smaller enterprises), announced in January that it would issue CNY 1.1 billion (USD 176.8 million, EUR 135.7 million) in shares to existing shareholders to fund an expansion of its production base.
Haid traded at CNY 17.40 (USD 2.79, EUR 2.15) per share on 4 March, down from a 52-week high of CNY 19.19 (USD 3.08, EUR 3.37) but well up on the low of CNY 13.87 (USD 2.23, EUR 1.71) for the same period. A report published by Qilu Securities talks up the firm’s prospects, suggesting Haid will benefit from consolidation in the feeds industry prompted by higher production costs. Qilu pointed to Haid’s leading position in the “comparatively lucrative” aquatic feed business. Major producers for aquatic feeds were all planning to increase price due to rising raw material costs. Haida's general manager, Xuehua said recently that Haida would raise prices for products mostly made from fish meals, such as shrimp feeds.
Among the local aquaculture players seeking to raise cash, Shandong Homey Aquatic Development Co. recently held a shareholders’ conference to approve investment in a fishery port project, costing CNY 400 million (USD 64 million, EUR 49.4 million). The firm also recently invested CNY 70 million (USD 11 million, EUR 8.6 million) in six new fishing boats that will fish the troubled South China Sea, the scene of territorial disputes between China and southeast Asian nations. Over 40 percent of the price of the ships will be covered by government subsidies — not surprising given Shanghai-listed Homey’s chairman Tang Chuanqin was recently selected as a delegate to the 12th National People’s Congress of Shandong province, a policy-setting annual legislator seen as a rubber stamp for legislation drafted by the Communist Party.
Also seeking to spend new cash, Dalian Yi Qiao Marine Seeds Co. (its products include shrimp, crabs, sea cucumbers) which announced it wants to invest CNY 250 million (USD 40 million, EUR 31 million) to rent land and sea space to increase its cultivation activities. The firm’s stock on the Shenzhen exchange closed at CNY 23.80 (USD 3.82, EUR 2.94) early this week, down from a 52-week high of CNY 27 (USD 4.34, EUR 3.33) per share.
While increasingly focused on domestic sales, many of China’s listed aquaculture and seafood firms are still dependent on exports. Relatively new to the Shenzhen exchange, Baiyang Aquatic recently announced it had achieved certification of the British Retail Consortium. The tilapia-focused firm’s shares traded at CNY 26 (USD 4.18, EUR 3.2) on 4 March, compared to a 52-week high of CNY 29.98 (USD 4.82, EUR 3.70).
