Results from the first quarter of 2020 for China’s biggest seafood firm show the damage done by coronavirus on its earnings both at home and abroad.
Guolian Aquatic has flagged a loss of between CNY 30 million (USD 4.2 million, EUR 3.9 million) and CNY 35 million (USD 4.9 million, EUR 4.5 million) for the first three months of 2020. The company is blaming a collapse in sales from its foodservice division, as the company supplies fast food chains around the country.
“This business has dried up,” the company said in a note to investors.
The shutdown of catering enterprises in the U.S. has likewise hurt business, but not as much as losses in the domestic market, to which Guolian has explicitly been shifting focus in recent years.
Getting sales back up will take time. Consumer incomes –and spending – in 2020 will drop, according to 68 percent of 1,000 people surveyed by investment bank China Renaissance earlier this month. And a separate survey of 1,000 by Chinese logistics-focused consultancy Cefuture suggests 41 percent of Chinese consumers will cut back on consumption in order to save for future crises, while 51 percent of those surveyed said they would work harder to keep buying.
But the long-term outlook for Guolian is good due to the firm’s spend on marketing, according to a leading securities firm following the stock. Guotai Junan Securities has put a target price of CNY 6.30 (USD 0.88, EUR 0.81) on Guolian – a significant upside on the CNY 4.12 (USD 0.57, EUR 0.53) at which the company currently trades. A Guotai Junan research study on Guolian published in March points to the company’s “superior brands” and distribution network: it points to seven Fortune 500 company clients – a reference to some of the retailers and restaurant chains that buy from Guolian.
However, a high debt-load is complicating Guolian’s health. The company’s spending on R&D and management rose 40 percent year-on-year in the first quarter.
More broadly, the coronavirus is also exposing the vulnerability of China’s debt. Some USD 1.5 trillion (EUR 1.38 trillion) in non-performing loans was outstanding in China’s corporate sector at the end of 2019, according to accounting firm PWC, a figure set to grow given the impact of COVID-19.
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