LI, Tao @ Hong Kong

Sumpo Food Holdings Ltd, a Fujian province-based chicken meat products supplier, expects to triple its production capacity with fresh capital raised from an initial public offering in Hong Kong to meet the growing demand of consumers and clients.

Sumpo Food, one of the suppliers to Kentucky Fried Chicken (KFC) and Dicos Fried Chicken on the mainland, said it is current capacity of slaughtering and processing up to 18 million broilers per year has already fallen short of demand from the fast-food restaurants as well as retailers.

“By raising funds from the Hong Kong listing, we are going to establish new breeder farms, hatching facilities as well as new broiler breeding farms to add another 36 million broilers in capacity each year,” Sumpo Chairman Lin Qinglin said at a press conference Wednesday.

Sumpo Food is offering 400 million shares, 10 percent of which will be through a public offering to individual investors with the remaining portion via placement to institutional investors, at a price of HK$0.60 to HK$0.80 per share. Assuming the over-allotment option is not exercised and based on the median offer price of HK$0.70 per share, net proceeds from the shares offer are estimated to be about HK$258 million, according to the term sheet.

Driven by improving living standards and growing income, the mainland market for meat consumption has grown steadily over the years, which leaves great room for the company to tap new business opportunities, said Lin, who noted that the company’s major clients such as KFC have been asking the company to increase the supply of chicken for some time now.

The mainland ranked number one in the world in terms of meat production during the period between 1990 and 2007 according to the China Animal Agriculture Association. In 2008, it imported 799,600 metric tons of chicken products from overseas markets.

Though the market potential is huge, Louis Wong, director of Phillip Securities said it is not easy for chicken breeders to maintain steady profits as the business is prone to factors out of its control such as feed prices, bird flu and pork prices.

Wong cited the example of Hong Kong-based DaChan Food (Asia) Ltd, KFC’s biggest supplier on the mainland, which is in a similar line of business as Sumpo Food and has seen its profit slip since it went public in 2007.

DaChan earned $26.2 million in 2007, but profits shrank to $19.7 million in 2008 and $15.8 million in 2009. According to its interim result this year, profit of the company for the first half further contracted to $6 million. Wong added that it is likely to post another profit decline this year.

According to the track record provided by Sumpo Food, the company’s net profit stood at 44 million yuan, 46 million yuan and 59 million yuan for the three years to 2009. The company earned 22.9 million yuan in the first six months of this year.

China Daily

(HK Edition 12/30/2010 page3)

http://www.chinadaily.com.cn/hkedition/2010-12/30/content_11773620.htm

Cars and vehicles are stuck in traffic on Chang’An Avenue in Beijing. The city’s authorities announced measures Thursday to limit new vehicle registrations, causing a decline in auto sector share prices. Nelson Ching / Bloomberg

Automakers were hit hard Friday as investors dumped their stocks on worries that other cities on the mainland will follow suit after Beijing unveiled measures to limit new car registrations, a move that will effectively hurt car sales.

Brilliance China Automotive Holdings Ltd, the local partner of Bayerische Motoren Werke AG (BMW), dived 7.69 percent to close at HK$5.4 in Hong Kong trading Friday while Dongfeng Motor Group Co, one of the “top four” domestic automakers, slumped 7.75 percent to settle at HK$13.1.

Geely Auto, the listed unit of China’s Zhejiang Geely Holding Group Co, dropped 6.3 percent on the same day. Great Wall Motor Co and Guangzhou Automobile Group Co were down 5.22 percent and 4.71 percent, respectively. The sector significantly underperformed compared with the 0.3 percent fall in the bench market Hang Seng Index.

On Thursday, Beijing’s authorities announced measures to limit new vehicle registrations to 240,000 units next year, down about 70 percent from this year’s numbers, in a bid to ease massive traffic jams in the capital city.

“The cap of 240,000 units on new vehicle registration in 2011, compared with car sales of more than 800,000 units this year, suggests that automakers are going to have a hard time in the Beijing market next year,” Kenny Tang, executive director with Redford Securities told China Daily.

The Beijing automobile market accounted for about 6.9 percent of total car sales in China this year, with luxury brands such as Mercedes-Benz, BMW and other foreign brands making up the biggest share, Sina.com cited a Morgan Stanley report as saying.

Brilliance China sold 12.7 percent of its cars in Beijing and Dongfeng Motor sold about 7.3 percent, while Geely and Great Wall generated only 2.4 percent and 2.9 percent of their total sales in the city.

“The plunge in shares of Geely and Great Wall, which are less popular in the Beijing market, indicated that investors are concerned about further vehicle controls as traffic chaos is now a huge issue in many Chinese cities,” said Tang.

According to a Goldman Saches research note released Thursday, Beijing’s new vehicle control measures are stricter than expected. It forecasts that the new policy will hurt passenger vehicle sales in the country by around 4.5 percent in 2011.

If the annual growth rate of vehicle sales is maintained at about 10 percent to 15 percent, more mainland cities are also likely to initiate control measures in a bid to contain the soaring number of cars which pollute the air and jam the roads, Morgan Stanley said in the report.

Tang nevertheless is keeping his long-term “overweight” rating on the automobile sector due to its stellar overall growth rate.

“The Central Government strives to boost domestic consumption and the automobile industry has made a tremendous contribution to that effort. Even if car sales are likely to slow down in some big cities, I believe the second and third tier cities will remain buoyant,” Tang added.

In the January to November period of this year, car sales in China rose 34.1 percent year-on-year to a record 16.4 million units – nearly three million more than that in 2009, according to the China Association of Automobile Manufacturers.

The nation overtook the US last year as the world’s biggest car market with sales surging 45 percent to 13.6 million vehicles in 2009.

China Daily

(HK Edition 12/25/2010 page2)

http://www.chinadaily.com.cn/hkedition/2010-12/25/content_11753817.htm

Reports say tycoon hopes to raise more than 10b yuan in first half of 2011

Hong Kong tycoon Li Ka-shing is preparing what is likely to be the city’s first yuan-denominated initial public offering (IPO) in the first half of next year, according to reports citing people familiar with the matter.

Billionaire Li, chairman of Cheung Kong (Holdings) Ltd, has hired Citic Securities International Co to lead the sale in a bid to raise more than 10 billion yuan through a real estate investment trust (REIT) backed by the Oriental Plaza development in Beijing, the Hong Kong Economic Times quoted anonymous sources as saying Wednesday. HSBC Holdings plc will help arrange the offering, the sources added.

Cheung Kong and its affiliate Hutchison Whampoa Ltd own 33.4 percent and 18 percent, respectively, of the Oriental Plaza – a large complex which includes hotels, commercial property and shopping malls.

“It would not be surprising if the rumor proves to be true,” said Linus Yip, an analyst at First Shanghai Securities. “If the IPO receives a good response, I believe more companies will follow suit.”

Cheung Kong rose 3.53 percent to HK$120.4 while Hutchison Whampoa declined 0.37 percent to close at HK$80.1 in Hong Kong trading Wednesday.

Meanwhile, Joseph Yam, the former chief executive of the Hong Kong Monetary Authority (HKMA) said at a public lecture in the city Wednesday that Hong Kong, as an international finance center, is ready to develop a yuan IPO market.

“The time for yuan-denominated IPOs in Hong Kong is now ripe,” Yam said, adding that supervision will be necessary in order to prevent the yuan becoming a tool to be exploited by international speculators.

Charles Li, chief executive officer of Hong Kong Exchanges & Clearing Ltd, in October had also expressed a desire to see the first yuan-denominated IPO in the city next year.

Yuan deposits in the city surged by a record 67.8 billion yuan in October to an all-time high of 217.1 billion yuan, according to the HKMA, spurred by anticipation of an appreciating yuan and the mainland’s first interest-rate hike in almost three years.

Nevertheless, Shanghai First’s Yip said that there are still a number of issues to take into account such as the daily cap per person on the physical exchange of the mainland’s currency in the city, which currently stands at no more than 20,000 yuan. He said it could impede investor enthusiasm, even if the city’s initial yuan IPO is deemed a success.

“The liquidity pool of yuan in Hong Kong is still not large enough yet to support a swarm of yuan stocks in the city,” Kelvin Lau, an economist at Standard Chartered Bank told China Daily.

“The first few yuan listings will primarily be seen as tests for the authorities to figure out any underlying problems. The number of yuan-denominated stock sales seen in the city’s bourse will still be limited next year,” he added.

China Daily

(HK Edition 12/23/2010 page2)

http://www.chinadaily.com.cn/hkedition/2010-12/23/content_11742223.htm

The Li-Ning brand logo is displayed outside one of the company’s stores in Beijing. The company’s share closed down 15.95 percent Monday at HK$17.86 on news that its orders for the second quarter of 2011 were down. Bernardo De Niz / Bloomberg

Chinese sportswear maker Li Ning Co plunged almost 16 percent in Hong Kong trading Monday – its biggest-ever drop – after announcing that its orders have slowed and its costs are rising.

Li Ning’s closed down 15.95 percent at HK$17.86 from HK$21.25.

Li Ning said on its website Friday evening that its year-on-year orders for apparel products and footwear for the second quarter of 2011 were down 7 percent and 8 percent respectively.

Zhang Zhiyong, the company’s chief executive officer, said that Li Ning’s growth model has been heavily reliant on store openings by its subdistributors. And given that operating costs at the retail level are escalating rapidly, this model is no longer sustainable and the company has set conservative growth targets for next year, he added.

“We are of the view that the retail environment for the sporting goods industry next year will face heavy pressure,” said Zhang.

Total order value for the second quarter next year is flat compared with the same period last year after it lifted its average retail prices for footwear and apparel by more than 8 percent, the company said.

“Taking into account the impact of a 3 percent higher wholesale discount (to the distributors), total order value in sell-in terms declined by 6 percent compared to the same period last year – its first volume decline since 2008,” Joyce Jia, an analyst with SWS Research wrote in a report released Monday.

Meanwhile, Li Ning’s mainland competitors listed in the city earlier reported healthy growth in their orders for the second quarters of 2011.

Anta Sports Products Co announced a 21 percent year-on-year increase in orders while Xtep International Holdings Ltd and Peak Sport Products Co saw rises of 25 percent and 24 percent, respectively.

Competition for Li Ning in 2011 will become even tougher in the mid-range sportswear market, as Li Ning faces competition from both domestic and international brands, said Jia. She added that after a two-year consolidation of their retail channels, Nike and Adidas are now back on the scene and intend to expand their mainland market presence next year.

“On one hand Li Ning is offering more discounts to its wholesale distributors, but on the other hand more of them are losing confidence in the company,” Core Pacific-Yamaichi analyst Bill Chen told China Daily.

“Li Ning positions itself as a mid-to-high end sportswear maker, but it has lost the second and third-tier markets to Anta and Xtep because of its high prices, and the high-end consumers because of popularity.”

Chen said he doesn’t expect any miracles from Li Ning in the near term as the company continues to lose market share.

Its order value for the first quarter of 2011 was also low compared with other players, which increased 12 percent year-on-year while Anta’s rose 21 percent and Xtep’s climbed 23 percent.

Li Ning has lost more than 39 percent of its share price value this year compared with its closing price of HK$29.5 on December 31, 2009.

China Daily

(HK Edition 12/21/2010 page3)

http://www.chinadaily.com.cn/hkedition/2010-12/21/content_11730365.htm

The city’s unemployment rate fell to 4.1 percent for the three months ended November from 4.2 percent in the previous period, the lowest since January 2009 as total employment rose for a sixth consecutive month and surpassed its 2008 pre-financial crisis peak, the government said Thursday.

As many as 58,500 jobs were created in the past six months and the number of unemployed people fell notably to 143,300 as of the end of November, from the previous 153,200, hitting the lowest level in almost two years, according to the city’s Census and Statistics Department.

“Thanks to the sustained economic growth and job creation, total employment increased for the sixth consecutive month to an all-time high of 3.54 million,” said Matthew Cheung Kin-chung, the secretary for labor and welfare.

The underemployment rate remained unchanged at 1.9 percent between the September and November period from the previous three months.

New jobs were mainly seen in cleaning, hotels, warehousing and support activities for transportation sectors.

Cheung expects the unemployment rate to remain at its currently low level as the seasonal upsurge in business activities in the run-up to the upcoming festivals will create more positions and help absorb job hunters.

“Employers will continue hiring in the coming months as they try to meet the strength of incoming new orders. With the seasonal holidays around the corner, household confidence and spending look set to perk up further into the New Year,” Donna Kwok, economist for Greater China at HSBC wrote in a report.

External demand is not the only driver of Hong Kong’s job creation and wage growth recovery, as Kwok said the contribution of local demand has also established roots of its own, which is enough to keep things going even if global trade activity dips slightly next year.

“The city’s jobless rate is expected to wind up by 4 percent next February when the Chinese traditional Lunar New Year ends. But it is likely to rebound slightly in the second quarter when the city’s minimum wage ordinance starts taking effect,” Irina Fan, senior economist from Hang Seng Bank said.

Hong Kong’s first minimum wage rate, set at HK$28 per hour will take effect on May 1 next year and it will benefit the city’s 314,600 or 11.3 percent low-paid employees who mainly serve in the catering, cleaning, estate security and retail trades according to government data.

Fan, nevertheless, estimates the impact of the increased rate on Hong Kong’s overall unemployment rate to be relatively mild, particularly in view of the improving economic and labor market conditions.

“Hong Kong’s strong economic momentum has well supported the city’s job market recovery over the year. Since a continued improving economy is well expected for next year, Hong Kong’s unemployment rate will remain stable in 2011,” Fan added.

China Daily

(HK Edition 12/17/2010 page2)

http://www.chinadaily.com.cn/hkedition/2010-12/17/content_11715325.htm