Chinese aquaculture companies face increased scrutiny and difficulties getting investment. That’s according to an influential Chinese financial media group in an analysis of the ongoing debacle around Zhangzidao Group Co., China’s largest seafood company, over a massive loss and rumors in the Chinese state-run media of financial irregularities. The firm at the weekend reported a third-quarter net loss of RMB 860.8 million (USD 140.4 million, EUR 112.8 million) which it blamed on a freak cold-water current in the northern Yellow Sea from June to August that the company claimed wiped out its scallop stocks before they could be harvested from the sea this year.
An investigation by Phoenix News of Zhangzidao’s data for earlier years shows the firm expanded its sea acreage “massively” yet questions revenues reported for subsequent harvests — bearing in mind a three-year growing cycle, as stated by company documents. According to the Phoenix report, (also posted in Mandarin on the Phoenix website) in 2013 Zhangzidao booked scallop revenues of RMB 959 million (USD 156.3 million, EUR 125.6 million), only slightly higher than a 2010 figure of RMB 900 million (USD 146.7 million, EUR 117.9 million). However the 2013 harvest was theoretically of a 1.20 million mu (15 mu in a hectare) plot of scallop seedlings from 2010, whereas the 2010 harvest should be the 2007 vote seedlings area of only .32 million mu.
Phoenix notes that Zhangzidao said in official company statements to investors its expansion of mariculture acreage had been “well executed,” in line with company plans. In 2011, the company invested 1.27 million mu of seedlings area, taking the company total to 3.30 million mu. Phoenix News, which has added credibility in China due to its unique private Hong Kong-based ownership, also suggests that the complexity of mariculture methods in particular will make it more difficult for investors to understand and trust figures reported by aquaculture companies involved in mariculture.
Trading has been suspended since mid-October in shares of Zhangzidao Group Co. on the Shenzhen Stock Exchange, China’s board for high-growth companies. Shares for the firm — which has a market capitalization of RMB 11 billion (USD 1.8 billion, EUR 1.4 billion) — have seesawed over the past year from RMB 12.10 (USD 1.97, EUR 1.58) to RMB 16.96 (USD 2.76, EUR 2.22) before settling at RMB 15.46 (USD 2.51, EUR 2.02) prior to trading being suspended.
Zhangzidao has been seeking to rebrand itself under the more international sounding Zoneco name to reflect its growing business in trading and importing seafood to satisfy soaring Chinese demand. To that end Zhangzidao earlier this year bought Canadian processor Capital Seafood International with a view to securing more lobster supply for the Chinese market. In May it acquired Dalian Xinzhong Sea Food Co., a Dalian-based wholesaler of sea food.
Up to now Zhangzidao has scored better than other mainland China-listed peers in net profit margins (3.12 percent and 3.71 percent in second quarter of 2014 and full-year 2013 respectively) as well as operating margins of 3.04 percent and 3.08 percent for the respective periods. Shrimp exporter Zhanjiang Guolian by contrast reported net profit margin of 0.70 percent in the second quarter of this year and 2.55 percent for 2013. Shandong Homey scored net profit margin of 2.88 percent in the second quarter but 10.55 percent for 2013 — in part thanks to its focus on high-end sea cucumbers.
Zhangzidao has almost 5,000 workers staffing its operations in hatching, farming, processing, and trading sea scallops, bay scallops, squid, shrimp and sea urchins. The firm also produces abalone and conch.
Chinese companies struggle to raise money from domestic stock markets, which suffer from poor credibility with investors. While its performance was up 12.5 percent year on year in the first nine months the Shanghai Composite Index is still down 60 percent from a 2007 high. Investors are worried by price/earnings ratio of 9.6 which is half the exchange’s 10-year average according to data printed by the exchange.
