THINGS MAY be looking up soon – way up – for Heng Tai Consumables Group Ltd (HK: 197) if recent sales figures are any indication, says a recent story translated from the Singtao Daily.
The Hong Kong-listed distributor of packaged foods, beverages, household consumable products, and cold chain products to wholesalers, retailers, and on-premise customers in China said its year-to-June top line was better than anticipated in an uncertain economy.
The company (www.hengtai.com.hk) reported profit attributable to equity holders of 115.1 mln hkd, or 6.1 cents per diluted share on turnover of 1.897 bln hkd compared to profit attributable to equity holders of the company of 255.1 mln hkd or 13.1 cents per diluted share on turnover of 2.274 bln hkd for the same period last year.
Profit from operations was 125.9 mln hkd versus 245.97 mln a year earlier. Profit before tax was 118.75 mln hkd against 260.39 mln. Over the period, profit margins fell to 21.4% from 22.4%.
So what's the good news?
Even though the company was not unlike its peers in the consumer sector, taking a broad hit from the global economic downturn, the hit was not necessarily across the board for Heng Tai.
For the 12 month period ending June 30, Heng Tai's sales of fresh produce and cold chain service operations managed to buck the trend and rise by 14% and 2%, respectively.
However, combined sales revenue from other product categories fell by around 35%.
In order to meet strong anticipated demand growth in the PRC going forward, the company has already secured vegetable and fruit cultivation lands totaling around 20,000 mu (one mu = approximately 6 acres), which is a big step in helping the group reach the milestone 30,000 mu level.
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Heng Tai is currently a bargain China domestic consumption stock, and the firm's continued reinvestment in logistics capability serves as a strong backbone upon which to boost future expansion across the country, and places the Hong Kong-listed firm in a strong position to tap expected strong domestic demand going forward.
It is also showing sales volume improvements for some categories including cosmetics, skin care products and frozen/fresh produce, with margin improvement room evident.
Current EPS for Heng Tai's shares is hovering around 9 times, which cannot be considered expensive.
If the company can attract the attention of established institutional investors, then it's valuation could see a very sharp upward correction.
