April 27, 2004

 

 

China Resources Enterprise Buys Stake In Shenzhen's Biggest Abbatoir
 

China Resources Enterprise (CRE) said its food unit will buy 70 percent of Shenzhen's biggest slaughterhouse operator for RMB380 million (HK$358.23 million). This is done in an attempt to beef up its food distribution business.

 

The stake in Shenzhen Food General was purchased via CRE's wholly owned Ng Fung Hong - a major supplier of Hong Kong's fresh pork, after an open bid for international investors. Shenzhen Food General's net assets were valued at RMB543.4 million.

 

"The strategic investment in Shenzhen Food is aimed at strengthening the food distribution business of the group by leveraging the synergy between the two companies," CRE deputy managing director Mark Chen said.

 

Shenzhen Food, which owns two of the three slaughterhouse operating licences in Shenzhen, is an integrated food distribution company. It has an annual production capacity of 1.5 million cattle and the biggest poultry distribution market in southern China.

Chen declined to disclose Shenzhen Food's earnings details over the past two years. He said its target return on its new investment was at least 10 per cent.

 

The acquisition, which is still awaiting approval from the mainland authority, is expected to be completed by the end of June. The earnings of Shenzhen Food will be reflected in CRE's second-half results.

 

CRE's development plan for its food distribution business is to establish an integrated supply chain for its meat distribution, Chen said. The group will consolidate its food distribution segment to boost its bottom line after the acquisition.

 

Meanwhile, property assets accounted for a large portion of Shenzhen Food's total assets and it may unload some of its non-core property assets to improve its cash flow in the future.

 

Feng Yulin, chairman of Shenzhen Commerce and Trade Investment Holdings, which controls Shenzhen Food, said the acquisition represented a significant step in the reform of the state-owned enterprise.

 

According to CRE, the mainland meat industry enjoys annual growth of 3 per cent to 5 per cent in consumption. Pork consumption per person in China is low compared with international standards.

 

CRE said improving living standards on the mainland will boost pork consumption and narrow the gap with more developed countries.

 

Shares of CRE fell 2.55 per cent to close at HK$9.55 yesterday.