Tingyi Says Cost ‘Pressure’ to Continue in Second Half of 2010

Tingyi (Cayman Islands) Holding Corp., China’s biggest maker of packaged food, said cost “pressure” will continue in the second half as its gross margin stayed near the lowest level in at least a decade.

“It may take a longer period of time for prices to return to a lower level,” the maker of Master Kong noodles and ready- to-drink tea said in its earnings statement today. First-half gross profit margin was 26.1 percent, the second-lowest level for a six-month period since at least 2001, according to data compiled by Bloomberg.

Net income rose 16 percent to $229 million in the six months ended June 30, Tingyi said in a statement to Hong Kong’s stock exchange. Sales climbed to $4.1 billion as revenue from instant noodles rose 22 percent.

Foodmakers in China, including smaller rival Want Want China Holdings Ltd. (151), are contending with higher costs of raw materials such as sugar and plastic packaging. China’s consumer prices accelerated to 6.5 percent in July, the fastest pace in three years.

“Since last year and in the first half of this year, our Group faced tremendous pressure from surging costs in raw materials which had significantly affected our profitability,” Want Want said in a filing today. Marketing and promotions in the second half will help improve product margins, it said.

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Tingyi dropped as much as 11 percent, the biggest intraday loss since Jan. 22, 2008, to HK$22.05 before trading at HK$22.50 as of 2:27 p.m. in Hong Kong. The stock has advanced 13 percent so far this year, compared with a 14 percent slide in the benchmark Hang Seng Index. (HSI)

The global economy’s recovery “is not smooth, uncertainties in economic growth and instability in the financial markets have increased significantly,” Tingyi said. “It may take a longer period of time for prices to return to a lower level.”

Tingyi will strengthen cost controls and optimize production to deal with rising raw materials and labor costs, it said. “The domestic driving force for domestic economic growth remains strong.”

Tingyi had a gross profit margin of 25.97 percent in the second half of last year, according to data compiled by Bloomberg.

Net income for Want Want rose 3.6 percent to $167 million with sales growing 28 percent to $1.3 billion.

Want Want fell 3.2 percent to HK$6.35 and has declined 6.9 percent this year.

To contact the reporters on this story: Michael Wei in Shanghai at mwei13@bloomberg.net; Nicholas Wadhams in Beijing at nwadhams@bloomberg.net

To contact the editor responsible for this story: Frank Longid at flongid@bloomberg.net

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