China Resources Enterprise Ltd., the country’s second-biggest hypermarket operator, posted profit that missed analyst estimates, saying a “slowdown in growth momentum” in the economy weighed on demand.
Underlying profit rose to HK$1.64 billion ($211 million) in 2013 from HK$1.53 billion a year earlier, the company, which also makes China’s biggest-selling beer, said in a statement. That compares with the HK$1.78 billion average of 17 analyst estimates compiled by Bloomberg.
The country’s economy was “full of challenges” in 2013, China Resources said in a statement today. Spending by the state-backed group to acquire stakes in fruit-processing and rice businesses also damped profit in its food operations after it agreed to combine hypermarket operations with those of Tesco Plc’s China unit in October, it said.
“When you are expanding very quickly and the economy suddenly slows down, you may have overcapacity,” said Jeremy Yeo, a Hong Kong-based analyst at Mizuho Securities Asia Ltd.
Underlying profit at the company’s food unit dropped 80 percent to HK$53 million, according to the statement.
Same-store sales growth will slow this year as the Chinese economy continues to cool, Vincent Tse, China Resources general manager, told reporters today in Hong Kong.
Sales rose 16 percent in 2013 to 146.4 billion yuan, according to the statement, compared with the 144.8 billion yuan average of analyst estimates.
China’s gross domestic product is forecast to expand 7.45 percent this year, the slowest in 24 years, according to economists surveyed by Bloomberg.
China Resources rose 1.2 percent to close at HK$19.76 in Hong Kong trading, trimming its decline this year to 23 percent, compared with an 9.1 percent decline in the benchmark Hang Seng Index.
The deal with Tesco adds the U.K.-based retailer’s 134 outlets and shopping-mall businesses in China to the almost 3,000 stores China Resources owns.
Tesco will pay HK$4.33 billion for 20 percent of the venture, with the Hong Kong-based group owning the rest, according to their agreement announced last year.
The hypermarket chain will be renamed CR Vanguard gradually within two to three years and the tie-up is expected to break even in three years, China Resources Chief Financial Officer Frank Lai said at a press briefing today. Tesco will also bring its private label to China soon, he said.
China’s economy grew 7.7 percent in 2013, according to the statistics bureau, the same pace as in 2012.
Underlying profit at the beer division, which accounted for more than half of profit last year, rose 15 percent to HK$943 million. The company makes Snow Beer with SABMiller Plc. in China.
The company’s retail unit posted a 40 percent increase in profit to HK$734 million.