China Agri-Industries revealed expansion plans in wheat milling, to exploit prospects enhanced by a cut to the state guaranteed price, after a year of growth focused on oilseed processing, fuelling a more than doubling in earnings.
The vegetable oils-to-rice group, which is part of the empire of state ag trading giant Cofco, said it was taking a “variety of approaches” to “strengthen the geographic footprint” of its wheat processing division.
These include “acquisition”, besides the construction of new plants, at a time when tight margins have spurred a “trend to consolidation in the wheat processing industry”.
“Large-scale… processors increasingly predominate” in the sector, China Agri-Industries said.
‘Cost pressures could be eased’
Indeed, last year “processors with simple business model suffered from the rising costs” of raw materials, the group said, revealing that its own operating profits in the sector rose by a modest 5.1% to HK$158.0m, despite growth of 18.1% to HK$10.56bn in revenues.
However, it forecast better market conditions ahead, thanks to a 2.5% cut, to 2,300 yuan a tonne, for 2018 in China’s minimum wheat price – the first such reduction since the policy was introduced more than a decade ago.
“As the minimum wheat purchase price reduced for the first time due to the progress of market-oriented reforms in the grain pricing mechanism, cost pressures could be eased for processors,” said Dong Wei, the China Agri-Industries chairman.
He saw the move as “promoting industry development”.
Well-timed crop purchases
The comments came as China Agri-Industries unveiled a jump to HK$3.38bn in earnings for 2017, from HK$1.53bn a year before, on revenues up 12.6% at HK$87.86bn.
“All business segments… maintained positive momentum,” the group said, flagging “steadily” growing in retail spending on grains and edible oils, backed by strong Chinese economic growth.
In the biggest division, oilseeds processing, revenues grew by 11.5% to HK$56.23bn, helped by acquisition, and winning the Chinese rights to the Fortune consumer edible oils brand.
The division’s operating profit rose by 12.6% to HK$1.18bn, helped by canny purchase of oilseeds to crush.
The group’s traders “locked in profit margin by making procurement at appropriate timing to reduce raw material costs”.
China Agri-Industries shares closed up 1.5% at HK$3.49 in Hong Kong.