BaWang issues earnings warning as sales plunge
BaWang International (Group) Holding Ltd, China’s largest herbal shampoo maker, fell as much as 6 percent in Hong Kong trading Tuesday. Nelson Ching / Bloomberg |
Guangzhou-based BaWang International Group Holding Ltd, a maker of herbal shampoos, fell as much as 6 percent in Hong Kong trading Tuesday after saying that sales turnover in the July to October period plunged about 31 percent compared with the same period in 2009.
As a result, the company may post a “substantial” fall in its earnings for full-year 2010, BaWang said in a statement filed to the Hong Kong Stock Exchange.
BaWang said the sales decline was due to the “dioxane incident” of three months ago.
On July 14, Hong Kong-based Next Magazine reported that samples of BaWang’s anti hair-loss formula shampoo contained tiny traces of dioxane, a cancer-causing substance.
The company said these rumors have “adversely affected the performance of the group during the past few months including a decrease in sales, and the additional costs for sales and marketing promotional campaigns in relation to the restoration of consumers’ confidence in the group’s products.”
After news of the decrease in sales, BaWang’s share price tumbled immediately on Tuesday, eventually closing down 5.67 percent at HK$3.16, compared with a 2.67 percent decrease on the city’s benchmark Hang Seng Index.
“After the contamination rumors, BaWang could hardly win back the hearts of consumers, especially when its products are totally replaceable in the market,” said Alvin Chung, associate director at Prudential Brokerage.
Shares of the Hong Kong-listed company fell by 23 percent between July 14 and 16 after the report appeared. On July 16, China’s State Food and Drug Administration clarified that the very low-level of dioxane contained in its herbal shampoo products were not a threat to the health of consumers.
However, sales of BaWang brand shampoo and hair-care products by volume have declined 50 percent between July and October after news of the scandal, according to earlier reports.
Chung said the concept of herbal shampoos made BaWang an attractive product when it was initially listed in the city. Although the safety of BaWang’s products have been given the nod by the relevant authorities on the mainland, consumers have lost confidence in the company and its products.
“I believe the impact of the scandal on the company will last for quite a while. Even if it is not losing money, I am not expecting it to make a big gain,” Chung added.
Jessica Le of OSK Research nevertheless took a bullish view on the stock due to BaWang’s business diversity plans.
The company plans to launch Chinese herbal household cleaning products under the brand name of “Doctor Gao” at the end of 2010, including hand wash, laundry, and house cleaning products.
Its herbal drinks performance was also in line with its target, according to Le. By the end of October, BaWang herbal tea had more than 100 distributors with a distribution network that had penetrated into more than 50 cities in southern China.
“We also believe current valuation provides a good opportunity for investors to enter the counter,” said Le. She set a target price of HK$3.87 per share, an upside of 23 percent.
China Daily
(HK Edition 11/24/2010 page3)
http://www.chinadaily.com.cn/hkedition/2010-11/24/content_11598505.htm