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Tingyi Slumps After Saying Cost ‘Pressure’ to Continue This Year

Tingyi (Cayman Islands) Holding Corp. fell the most in more than three years in Hong Kong trading after China’s biggest maker of packaged food said cost “pressure” will continue in the second half.

Tingyi fell 8.5 percent, the most since March 18, 2008, to HK$22.60 at the 4 p.m. close of trading in Hong Kong. That cut the stock’s advance this year to 14 percent, compared with a 14 percent slide for the benchmark Hang Seng Index.

Gross profit margin for the maker of Master Kong noodles and ready-to-drink tea stayed near the lowest level in at least a decade according to Tingyi’s earnings statement today and data compiled by Bloomberg. Foodmakers in China, including rival Want Want China Holdings Ltd., are contending with higher costs of raw materials such as sugar and plastic packaging.

“It may take a longer period of time for prices to return to a lower level,” Tingyi said as it announced first-half earnings today. “There are various factors leading to the rising prices of raw materials, and a general increasing trend is anticipated in future.”

China’s consumer prices accelerated to 6.5 percent in July, the fastest pace in three years.

Tingyi’s 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. The gross margin was 25.97 percent in the second half of last year.

Want Want Earnings

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

Want Want’s profit rose 3.6 percent to $167 million with sales growing 28 percent to $1.3 billion. China’s largest maker of rice crackers fell 4.3 percent to HK$6.28 in Hong Kong and has declined 7.8 percent this year.

“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 its earnings filing today. Marketing and promotions in the second half will help improve product margins, it said.

Tingyi postponed plans to raise prices of its Master Kong-brand instant noodles in March and said the decision is “in alignment with the policy of the state for maintaining the stability of commodity prices.”

The Chinese government warned Tingyi in May against “excessive” price increases and fined Unilever 2 million yuan ($308,000) for telling the media about plans to raise prices.

The global economy’s recovery “is not smooth, uncertainties in economic growth and instability in the financial markets have increased significantly,” Tingyi said.

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

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