China Resources Enterprise Ltd. fell the most in almost a year in Hong Kong trading after the Chinese beermaker and retailer said underlying profit dropped last year.
The company, SABMiller Plc’s government-backed partner in China, dropped 5.3 percent, the most since May 16, to HK$23.15 as of the close of trading in Hong Kong. Underlying profit, which excludes after-tax asset revaluation and major disposals of non-core assets and investments, dropped 19 percent in 2012 from the previous year, the company said in a statement today.
The decline in underlying profit led to a sell-off in the shares, Anson Chan, an analyst at KGI Asia Ltd., said in an interview after the results were announced.
China Resources said underlying profit decreased as it spent to expand its retail store network to new regions on the mainland and increased marketing promotions in its beverage business.
The company, which formed a soft-drink venture with Japan’s Kirin Holdings Co., spent HK$200 million last year promoting Kirin bottled teas, Frank Lai, its chief financial officer said at a briefing in Hong Kong today.
The brewer also said promotional spending crimped operating profit growth at its beer unit to 4.8 percent in 2012 from about 15 percent in the previous year. China Resources agreed in February to acquire Guangdong-based Kingway Brewery Holdings Ltd.’s beermaking assets for 5.38 billion yuan ($867 million) to boost its share of the market.
Net income climbed to HK$3.9 billion ($508 million) from HK$3 billion a year earlier, the company said in a statement to the Hong Kong stock exchange today. Profit climbed as the company expanded its retail and beer operations.
“The division has stepped up its marketing and promotional efforts in response to the intensifying market competition, which in turn hindered growth in operating profit,” the company said, referring to the beer operations, in today’s statement. The company makes China’s best-selling Snow brand with SABMiller.
Also, global economic volatility would continue to “affect consumer sentiment and short-term operating environment in the retail industry” this year, the company said.
Same-store sales growth for the company’s retail division may slow to about 3.5 percent this year, from 4.1 percent in 2012, Lai said, mirroring inflation. China Resources plans to expand its retail network by between 300 to 400 stores this year, he said.
The retailer expanded into new regions and benefited from the acquisition of Jiangxi Hongkelong Department Store Investment Co. China Resources operated more than 4,400 stores in China as of end 2012. The Hong Kong based company is also looking for acquisitions to expand its food business, particularly in the meat and fresh produce areas, Lai said today.
China’s Resources’ food unit posted a 19 percent increase to HK$331 million, and its beverage division saw profits fall 32 percent to HK$86 million, the company said. The Hong Kong-based brewer said on Nov. 21 a weak global economy would put some pressure on its consumer goods business.