Uni-President China Holdings Ltd (UPC, 統一中國控股) saw its shares drop 7.1 percent in Hong Kong trading yesterday after it announced that it is planning a rights issuance.
Uni-President China said that the proceeds from the rights issue would be used to repay bank loans and strengthen the company’s finances, but US brokerage Morgan Stanley said the move could also be a reaction to stiffening competition in China’s instant noodle and ready-to-drink beverage sectors.
Uni-President China is the Chinese food manufacturing arm of Uni-President Enterprises Co (統一企業), Taiwan’s largest food-and-beverage conglomerate.
In the final quarter of last year, Uni-President China posted its first net loss since it got listed in Hong Kong in 2007, amid fierce competition in the Chinese market from Wahaha Group (娃哈哈), Coca-Cola Co and Tingyi (Cayman Islands) Holding Corp (康師傅控股), whose food and beverage products are marketed primarily under the Master Kong (康師傅) brand.
Last week, Uni-President China released its first-quarter results, which showed that its net profit fell by 25 percent year-on-year to 237 million yuan (US$38 million).
On Sunday, Uni-President China said in a filing with the Hong Kong Stock Exchange that it was proposing launching a one-for-five rights issue to raise HK$3.28 billion (US$423.53 million) in funds.
The food manufacturer has proposed issuing 719.89 million shares at HK$4.56 per share, representing a 30 percent discount on the stock’s latest closing price.
Uni-President Enterprise will participate fully in the rights issue and maintain its controlling stake of 70.49 percent, the filing said.
“The rights issue will help UPC strengthen its financial position, while also re-affirming its ambition to continue with capacity expansion efforts in a bid to gain more market share,” Hong Kong-based Morgan Stanley Asia Ltd analysts Lillian Lou (樓超), Angela Moh (莫仁瑛) and Dustin Wei said yesterday in a client note.
Consumer demand in China might grow at a slower pace this year since the country’s economy is forecast to grow by just 7.3 percent, its weakest level since 1990, according to a Bloomberg survey released last month.
In the first three months of the year, China’s GDP increased 7.4 percent annually to post its slowest growth since 2012.
Given these economic conditions, increased supply resulting from an expanded production capacity combined with lukewarm demand “would intensify the competition again, putting more pressure on the margin recovery for leading players” this year, Morgan Stanley analysts said.
Deutsche Bank has lowered its target price on Uni-President China shares to HK$6.3 from HK$6.7, and Maybank Kim Eng Securities Ltd has adjusted its earnings per share forecasts from this year through 2016 by between 2 and 9 percent, to factor in a potential share dilution of up to 17 percent.
Uni-President China shares ended down 7.1 percent at HK$6.02 yesterday in Hong Kong, while Uni-President Enterprise fell 1.56 percent to NT$50.6 in Taipei trading.
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