Frozen seafood specialists' profits blossom in China as government stokes stock market bull run
A firm producing frozen seafood snacks and convenience food has turned in a record performance for the first half of the year, thanks to demand prompted by the COVID-19 lockdown.
Fujian Haixin Food Co. Ltd. is projecting profits for the first half of 2020 of between CNY 40 million and 50 million (USD 5.6 million and 7 million, EUR 5.2 million and 6.5 million), a year-on-year rise of 470 to 612 percent and well ahead of earlier projections.
Sanquan Foods, the country’s leading player in frozen foods, is predicting profits of between CNY 435 million and 462 million (USD 60.9 million and 64.6 million, EUR 56.5 million and 60 million) for the first half of the year, a rise of 390 to 420 percent on the same period last year.
The companies’ stocks have been a part of a surprising bull run in China’s stock exchanges, occurring as the country continues to reopen the economy and as Chinese state media outlets issue encouraging reports on the state of the country’s financial situation.
At the same time, China's government appears to be turning to the stock market as a means of raising funds at a time when the economy’s traditional engines have faltered. Rising personal debt via credit card spending and mortgages, combined with dropping savings rates, have curbed the government’s traditional model of financing. For decades, China put savings at state-owned banks (paying low interest rates) to work on infrastructure investments and projects at state-owned companies.
Similarly, many of China’s listed seafood companies have taken on massive debt recently. Despite questionable balance sheets, China’s seafood companies have in the past been treated as champions in their regions, protected and nourished by local governments who see them as a tool for local growth. With the coronavirus denting local economies but with the stock market high, many regional governments are aiming to recoup gains out of their investments. For example, a plan created by the municipal government of seafood hub Qingdao aims to increase the presence of local state-owned corporations on the stock markets.
A three-year plan running through 2022 commits the Qingdao State-Owned Assets Supervision and Administration Commission (SASAC) to listing more of the regional state-owned enterprises on equity markets by taking over already-listed entities as well as fresh listings. It aims to increase the number of (state-controlled) listed companies from 10 to 25 by 2022 as China loosens restrictions on foreign cash into its stock markets.
That could result in sector consolidation – in fact, it already has, when Qingdao-based Guoxin took a controlling stake in leading tilapia exporter Baiyang earlier this year.
It could also result in losses for individual investors in China’s stock market. The challenge for that group – which has led the surge in investment into the market’s current bullish state – is to avoid investments in companies that not been completely forthright in their financial disclosures, or who end up mired in lawsuits alleging such malfeasance.
Those warnings have underlined by a series of legal cases taken by past investors against listed firms claiming withholding of information. In one major example, the listed arm of state-owned China National Fisheries Corp (CNFC) is facing a possible lawsuit from investors who’ve been invited by several law firms to join a class-action lawsuit relating to data disclosure and filings from 2015, for which CNFC has already paid fines to the Chinese securities regulator.
In response, a new Communist Party appointee was appointed last month to shake up CNFC’s international business. Shao Xing Tao has been appointed deputy general manager at CNFC by the state-owned parent holding company, China National Agricultural Development Group Corporation (CNADC), where he served in a variety of foreign trade roles.
Photo courtesy of Sanquan