China's most popular pickle brand loses $500 mln off market cap in 2 days
Aug. 1 (NBD) -- On August 1, shares of Chongqing Fuling Zhacai Group Co., Ltd. (002507.SZ) tumbled 6.35 percent to 23.60 yuan (3.42 U.S. dollars), adding further woe to the company following a limit-down on the previous day triggered by weaker-than-expected earnings for the first half of 2019.
The market cap of the most popular pickle company listed in China A-shares has shrunk by 3.46 billion yuan (501.9 million U.S. dollars) to 18.63 billion yuan (2.7 billion U.S. dollars) after the release of the financial report.
"Our gross profit margin for the second quarter of 2019 remained flat compared to the prior year but the increase in selling costs led to a decline in net profit," commented Fuling Zhachai during an interview with National Business Daily (NBD).
Earnings slowdown induces northbound capital outflows
NBD noticed that Fuling Zhacai's revenue rose 2.11 percent from year-ago period to 1.086 billion yuan, according to its first-half earnings release after the trading session on July 30. Net profit attributable to equity holders of the listed company missed the expectations, merely adding 3.14 percent to 315 million yuan.
Fuling Zhachai's stock price drop reflects investors' disappointment with the moderate financial results for the first six months of 2019 as the company has maintained a momentum of significant growth since 2016. NBD noticed that the pickle manufacturer's net profit ballooned to 305 million yuan for its first half year of 2018, with the year-over-year growth rate hiking to 77.52 percent.
In fact, Fuling Zhacai delivered a satisfying performance in the January-March period of this year, but things somehow changed in the April-June period. According to the company's financial report, the net profit for the second quarter of 2019 was 160 million yuan, down 16 percent from the previous year.
NBD noticed that on July 31, northbound traders were found to be the top seller of the Chongqing-based company's shares, and the company witnessed a net capital outflow of 12.7 million yuan under the northbound trading via the Stock Connect program. The outflow reflects the dissatisfaction of foreign investors who has been favoring good quality consumption names in China's A-shares market.
Before the release of the earnings for the first half of this year, northbound traders have been keeping purchasing Fuling Zhacai shares.
Based on CCASS (Central Clearing and Settlement System) Shareholding Search of Hong Kong Exchanges and Clearing Market, NBD found that northbound traders increased their holdings in Fuling Zhacai by nearly 40 million shares from the beginning of this year through July 30, the trading day before the release of the financial report.
Soaring selling costs blamed for weak performance
"It's difficult to comment on the stock price change," said Fuling Zhacai to NBD. The company holds a positive attitude toward the revenue and expects steady growth in a long run.
As for the reason why Fuling Zhacai's revenue growth slowed down for the first half year of 2019, the company attributed it to the strain on macro consumption and the growth slowdown on household income. Furthermore, the company spent a lot in promoting management transformation and expanding sales channel.
NBD noticed that in the first six months of this year, the company's selling expenses jumped 9.45 percent to 230 million yuan in comparison with the prior year.
Industry insider Zhu Danpeng said to NBD that Fuling Zhacai's share price fluctuation is in line with the market rule that there usually sees a fall after a stock reaches its peak. Zhu held there would be a bottleneck when the company is facing troubles to diversify its revenue streams. As shown in the financial report, the revenue from pickle-related products accounted for 85.11 percent of the company's total for the first half, up 0.07 percent from the prior year.
A continuous price increase is also said to be a cause for moderate earnings. It is noteworthy that Fuling Zhacai increased prices of its products four times in recent three years and the latest price increase was in November 2018. Fuling Zhacai denied the statement that price increases induced the slowdown in its financial performance, saying "We do not feel the impact (of the price markup)."