China’s biggest seafood corporations report mixed 1H results
A key exporter of shellfish (and increasingly an importer of seafood) Zhangzidao Group Co. recorded RMB 1.24 billion (USD 202 million, EUR 154 million) in revenue in the first half of 2014, up 10.3 percent year on year. Net profit was down 8.07 percent to RMB 48.5 million (USD 7.9 million, EUR 6 million).
The firm attributes the sluggish figures to its heavy spending on increasing aquaculture and processing capacity as well as earnings from a cold-chain logistics network the firm has been building out.
Zhangzidao is also putting much store on its “offline to online” strategy of rising sales from its own and third party e-commerce websites. But interestingly the firm also has sales from its “recreational fishing” department which includes a luxury cruising vessel and a real estate project featuring seashore “seven star” villas.
China’s top shrimp exporter Zhanjiang Guolian Aquatic reported revenue of RMB 1.04 billion (USD 169 million, EUR 129 million) represents a jump of 15.4 percent on the first half of 2013. But RMB 200 million (USD 32.5 million, EUR 24.8 million) in profits represents a year on year increase of 358 percent. That strong performance has been achieved by an increase in average margins from 11.8 percent to 13.9 percent, according to the company’s official report. Guolian’s sales in the U.S. rose 23.6 percent to RMB 518 million (USD 84 million, EUR 64 million) while sales in China rose RMB 250 million (USD 41 million, EUR 31 million), up 33.7 percent year on year.
China’s listed agriculture and aquatic stocks have been a hit with investors and stock watchers in China this year. They are optimistic about the outlook, given rising demand for food — and government support to increase the quality and quantity of agricultural (and fisheries) output. One of the country’s key producers of animal and fish feed, Da Bei Nong rose its revenues by 265 percent to RMB 822.5 million (USD 134 million, EUR 102 million) but profits slipped 11 percent to RMB 28.4 million (USD 4.6 million, EUR 3.5 million) — that’s because the company has hired a huge sales team and one million full and part time extension staff to train pig and fish farmers in efficient feed use.
But debt is a big worry for firms. The debt-to-GDP ratio for China's non-financial corporations hit 113 percent by the end of 2012, according to a study by the Chinese Academy of Social Sciences with ratings agency Standard & Poor's putting total non-financial corporate debt at USD 14.2 trillion (EUR 10.8 trillion), eclipsing the USD 13.1 trillion (EUR10 trillion) comparable figure in the U.S.
The problem isn’t going away, according to a leading local economist, due to the “low profitability and high borrowing costs that China's industrial enterprises face.” That’s according to Yu Yongding, director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences. He notes Chinese firms' profitability amounted to just over 6 percent percent last year while interest rates on bank loans to non-financial enterprises remain close to 7 percent.
“With insufficient profits to use for investment, nonfinancial corporations will become increasingly dependent on external finance. As their leverage ratios increase, so will their risk premiums, causing their borrowing costs to rise and undermining their profitability further. This destructive cycle will be difficult to break. For example, if companies reduce investment, they will weaken growth and boost their leverage ratio further,” said Yu.