s fish feed leaders are having a good year judging by recent results, thanks in part due to increased prices for aquatic products as consumers switch to fish meat over worries about bird flu. Ventures into non-core businesses are however hurting results at market number two Tongwei Aquatic.Tongwei’s recently released first quarter 2013 fiscal report shows revenue at CNY 1.94 billion (USD 316 million, EUR 236 million), up 13.49 percent year-over-year. The firm however reports a net loss of CNY 56.6 million (USD 9.2 million, EUR 7.2 million). This is slightly better than the same period last year, when the net loss was CNY 69.28 million (USD 11.3 million, EUR 8.8 million). “This is a year on year improvement of 18 percent,” explained Haitong Securities analyst Ding Pin. Ding predicts the feeds business “will continue to do well” in 2013.
In 2012 Tongwei sold 3.72 million tons of feeds, up from 22.22 percent in 2011, among which aquatic feeds accounted for 57.2 percent (2.12 million tons, an increase of 29.43 percent compared to the previous year). Ding sees the firm’s processing activities as a risk however: “our estimation of the total net loss in 2012 in processing was CNY 90 million (USD 15 million, EUR 11.4 million) and we didn't see improvement in this business line.”
A willingness to play a series of industries may have contributed to the loss at Tongwei which rushed into the pork as well as the aquaculture industry, setting up breeding, slaughtering and processing facilities. The firm’s 2012 report revealed that its 2012 operating income in food processing sector was CNY 847 million (USD 138 million, EUR 107 million), a year on year decrease of 5.45 percent while the gross margin for food was 0.74 percent, a decrease of 1.14 percentage points from the previous year.
Ding adds that it’s encouraging that the firm’s average gross margins increased by 2.61 percentage points year-over-year. “Its feed business should do well this year,” said Ding. “Since the percentage of Tongwei’s business in low-margin areas like poultry feeds decreased.”
Market leader Guangdong Haid Group released its first quarter 2013 fiscal report, with first quarter revenue in 2013 reaching CNY 2.8 billion (USD 456 million, EUR 355 million), up 37.06 percent from the same period last year. Net profit rose 34.29 percent year-over-year, reaching CNY 4.72 million (USD 768,323/EUR 598,793). Company revenue will increase quarter by quarter in 2013, according to analysts following the firm. While the first quarter is typically the low market for aquatic products, aquafeed contributed 70 percent of the firm’s total gross profit in the period.
Investors in Haid shares had been worried this spring about the potential for dock delays in Latin America to pump up the prices of fishmeal and soybeans, both key Haid ingredients. Haid earlier pointed to a low survival rate of shrimp in 2012 as creating a low base and thus huge scope for growth in 2013 feed sales. Haid chairman Xue Hua said he expects a profitable second half to 2013, predicting that the price of pork and chicken will rebound from a current slump, driving demand for feed.
Others have more mixed feelings about the outlook. TF Securities, in its assessment of Haid’s results, points out that the price of feeds increased in the first quarter because of demand as well as rising input costs. Demand for aquatic feed will continue to rise, it noted, since “seafood will be still the replacement of chicken, duck and pork because of the bird flu virus… But the weather factor is unpredictable and it has big effects on aquaculture…likewise the prices of raw materials like corn and fish meal could also be factors that will negatively affect the company’s profit.”
