Two Hong Kong-listed seafood firms have blamed China’s ongoing economic woes and the country’s ban on Japanese seafood imports – both issues of which have unclear resolutions as 2024 begins – for tighter margins and losses that have forced them to adapt quickly.
Revenue at import investment business Ocean One, which sources seafood for Hong Kong and mainland Chinese customers, dropped 3.1 percent to HKD 240.6 million (USD 31.2 million, EUR 28.8 million) for the six months ending 30 September 2023, “primarily due to a decrease in sales of products such as Canadian snow crab, king crab legs, seasoned salmon fish roe, flying fish roe, and roasted eel,” the company said in a recent financial results release.
In the same six-month period, the company’s net profits decreased over HKD 8 million (1.02 million, EUR 935,720) year over year, totaling HKD 21.4 million (USD 2.78 million, EUR 2.56 million).
Among other factors, Ocean One has blamed the 24 August 2023 ban China placed on Japanese seafood imports – stemming from the controversial release of wastewater from the Fukushima nuclear power plant – for denting demand for salmon and other species traditionally used in Japanese dining.
Epitomizing those claims are China-based Japanese dining chains like Momtaro Sushi and Sushi Hanzo, which have both issued statements stressing they are no longer stocking Japanese seafood ingredients.
“Consumers may lose their appetite for Japanese food due to concerns in food safety,” Ocean One noted in a recent earnings report.
Ocean One has also pointed to customers trading down on the types of species they buy as reasoning to explain a tightening of its average profit margins to 14.5 percent, compared to 17.6 percent for the six months ending 30 September 2022.
“Decreases in gross profit and gross profit margin were mainly due to the selling of various low-margin products such as smoked salmon, black cod, Canada spot prawn, Japanese sashimi scallop, Arctic clams, and Greenland cockle during the period, together with a higher proportion in sales to mainland China customers at lower margin owing to bulk orders and shipment in containers,” Ocean One said.
China Shenghai Group is another firm that has been hit hard by China’s ominous financial landscape, as it announced recently that it had to issue more shares due to lower levels of profitability caused by weak demand. In early December 2023, the organization raised HKD 42.3 million (USD 5.49 million, EUR 5.07 million) from a new issuance of shares to shore up the company’s working capital.
The chain of events leading up to the increase in shares included the company discounting its shrimp- and squid-based seafood snacks to improve retail sales. Going even further back in time to contextualize its disappointing financial performance, China Shenghai alluded to the fact that mainland China’s economy has not shown any significant improvement after the post-pandemic reopening.
“Large real estate enterprises have suffered from … financial turmoil, and the knock-on effect has begun to affect the general public, thus weakening their spending power,” the company commented in a note to investors on its results.
Discounting due to weak demand appears to be a wider issue across the Chinese economy. Seafood prices in the country fell by 1.6 percent in November 2023, while the overall food consumer price index (CPI) was down 0.5 percent, according to data collected by the National Bureau of Statistics.
Chinese consumers appear to be holding back on spending given uncertainty over the fate of the economy.
Highlighting that things may worsen for the Chinese economy before it gets better, investment analysis ratings agency Moody’s issued a downgrade warning on the country’s credit rating, citing the cost to the federal government of bailing out indebted local governments as well as its inability to alleviate the challenges facing the country’s property market.
Retail sales in China rose 10.1 percent year over year in November 2023, but that figure is not as positive as it seems considering Covid-19 was still disrupting Chinese consumers and businesses during the same month a year prior. China’s overall CPI fell 0.5 percent in November, according to the National Bureau of Statistics.
Hong Kong retail sales, meanwhile, are down 20 percent compared to 2018 levels, according to Reuters, while tourism is down 40 percent.
Photo courtesy of Shutterstock/estherpoon
