Corporate earnings point to malaise in Chinese listed seafood firms
China’s leading tilapia exporter is claiming a weaker renminbi (RMB) has helped it improve its profitability despite tough international trading conditions.
Baiyang Aquatic Group reported a 4.75 percent increase in revenue for 2015 with a 1.96 percent increase in profits to Chinese yuan (CNY) 53.9 million (USD 8.23 million, EUR 7.59 million) though the firm claims total profits for its listed arm (this includes non-seafood activity) rose by 8.96 percent to CNY 58.7 million (USD 8.96 million, EUR 8.26 million).
Global demand and pricing for tilapia both remain “weak,” according to the firm in its official Chinese-language report issued to investors. But the gradual depreciation of the Chinese currency that occurred through 2015 has “helped the company’s profitability,” according to the report. Many international currency speculators are predicting a significant depreciation of the renminbi this year, in what could be a significant development for exporters like Baiyang.
The 2015 results, however, make for grim reading for investors in Baiyang, China’s leading processor and exporter of tilapia. It reported total revenue for 2014 of CNY 1.78 billion (USD 289 million, EUR 254 million), a year-on-year increase of 31.95 percent. Net profit attributable to shareholders of CNY 57.69 million (USD 9.23 million, EUR 8.07 million) in 2014 was up a mere 1.45 percent in 2014.
The Baiyang results do, however, look strong compared to 2015 numbers issued by shrimp and tilapia exporter Zhanjiang Guolian: the firm reported it was down 3.20 percent in revenue terms to CNY 2.06 billion (USD 314 million, EUR 289 million) in 2015 while profits fell 92.7 percent year-on-year to CNY 19.57 million (USD 2.98 million, EUR 2.75 million). Guolian blamed rising costs and falling export demand for its performance – it didn’t appear to get the kind of currency bounce that came to Baiyang.
Away from aquaculture and processing, there was somewhat more optimistic data from aquafeed specialist Guangdong Haid, which saw revenues rise 22 percent and net profit by 46.3 percent to CNY 78.7 million (USD 12 million, EUR 11.1 million). The firm sells feed and seedlings to aquaculture but also has a presence in China’s pork sector, which is currently in recovery mode.
But the latest figures are also related to a collapse in confidence in China’s stock markets that has damaged the prospects of Chinese seafood firms raising cash for expansion and paying down debt. This follows last summer’s slide in stock prices that spooked global markets – and saw lots of foreign investors in particular rethink their limited exposure to China’s stock markets. Incredibly, Guolian’s share price has gone from CNY 40 (USD 6.1, EUR 5.6) at the height of the market in June to only CNY 12.96 (USD 1.98, EUR 1.83) on 1 March 2016.
This is worrying because profitability has been a struggle at most major Chinese seafood firms in recent years. Listed firms like Shandong Homey and Oriental Ocean have been hammered by the slide in consumption of so-called luxury seafood products like sea cucumbers, into which many Chinese seafood firms had invested while scaling back their processing operations. In a bear market investors are asking hard questions of the sector in the face of such underwhelming returns.
China’s top seafood firms are reporting their 2015 results at a time when China’s securities regulators are nervous and ramping up reporting requirements while clamping down on irregular activity that has proliferated on China’s stock markets. Insider trading has been a feature of China’s stock market –not surprisingly, perhaps, since the regulator (government) is also a majority player, given the bulk of the markets’ value is in listed state-owned firms.
But this is bad news for firms like Baiyang and Guolian. Investors have already been spooked by the goings-on at Zhangzidao and now question aquaculture, an industry about which there has been so much hype and optimism – China after, all needs, more seafood – but about which Chinese investors feel they understand little.
This means Chinese companies will have to focus more on profitability and less on the kind of speculator non-core investments in real estate and the hospitality sector which has characterised many leading listed seafood firms. A wary stock market also means fewer funds for private investment in the kind of innovation and mariculture which China needs. It means less funds for investment in IT and logistics systems and branding which Chinese seafood companies need to grow their domestic sales.