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China Resources Profit Tops Estimates; Eyes Kingway Assets

March 21 (Bloomberg) -- China Resources Enterprise Ltd., the partner of SABMiller Plc, reported better-than-expected 2011 profit on higher sales in its beer business and said it is interested in buying the assets of Kingway Brewery Holdings Ltd.

Net income was HK$2.83 billion ($365 million) in the year ended Dec. 31, a decline of 50 percent from HK$5.67 billion which included a HK$3 billion gain from the sale of its brand-fashion distribution business interest, the company said in a filing to Hong Kong’s stock exchange today. That compares with the average estimate of HK$2.45 billion from 12 analysts surveyed by Bloomberg News.

Sales climbed 26 percent to HK$110.2 billion as China Resources expanded its beer and retail business by buying rivals to tap the country’s growing domestic consumption as incomes rise. China plans to raise the minimum wage level by an average of at least 13 percent annually in the years through 2015. Urban disposable income rose 14 percent to about 21,810 yuan last year.

China Resources is “interested in” taking over assets of Kingway Brewery, a Guangdong province-based beermaker, Chief Financial Officer Frank Lai said at a press conference in Hong Kong today, without saying if the company has made a bid for Kingway assets.

Final Round

Anheuser-Busch InBev NV, Yanjing Brewery and China Resources Snow Brewery have been picked to bid in the final round for Kingway Brewery’s assets, two people with knowledge of the matter said on March 3. Kingway invited the three bidders to make a final offer as early as mid-April for its six breweries, they said. China Resources Snow Brewery is a joint venture between SABMiller and China Resources.

“It’s a good asset; Kingway is a household name in Guangzhou,” Lai said. “We’re interested in looking at the acquisition.” China Resources can support any purchases with net cash of HK$3 billion and an average HK$8 billion annual operating cashflow, he said. It is under no pressure to raise funds by issuing equity and also has the ability to turn around any loss-making companies with its wide sales network across the country and greater negotiating power over costs, he said.

Profit at China Resources’ beer division, which makes China’s best-selling Snow beer with SABMiller, rose 15 percent to HK$785 million in 2011. Sales climbed 24 percent to HK$26.7 billion. The unit may see a 15 percent increase in sales this year, Lai said.

Its Snow beer has room to raise prices in 2012 and the company’s average selling price could improve as it shifts focus to more premium beer from mass market products, Lai said.

Global Economic Uncertainty

Under its retail business, China Resources now operates more than 4,000 stores in the world’s most populous nation, according to today’s statement. It plans to add 500 new retail stores and expects single-digit same-store sales growth in China this year, Lai said.

China Resources expects a “challenging” environment in China with consumer sentiment affected by global economic uncertainty and the European debt crisis. China Resources shares fell 1 percent to HK$29.45 at the 4 p.m. closing in Hong Kong. Benchmark Hang Seng Index fell 0.15 percent.

“It is expected that the company’s pressure on costs side will be alleviated this year as prices for raw materials have started to stabilize,” said Kenny Tang, Hong Kong-based general manager of AMTD Financial Planning Ltd. He rates the stock a “buy”.

Net income from the retail division, whose business consists of mainly supermarkets, fell 10 percent to HK$1.74 billion. Sales grew 27 percent to HK$70.1 billion. The food unit’s profit fell 34 percent to HK$278 million.

The board recommended a final dividend of HK$0.32 per share, bringing the total dividend for 2011 to HK$0.47 per share. This compares with a total payout of HK$0.52 in 2010.

To contact the reporter on this story: Vinicy Chan in Hong Kong at Vchan91@bloomberg.net

To contact the editor responsible for this story: Stephanie Wong at swong139@bloomberg.net

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