010834 China Poultry Firm Fighting to Stay Profitable

Shanghai - Leading Chinese poultry firm Dajiang will fight to remain profitable this year despite a strong first half, as narrowing margins peck at its business, a company official said.

Shanghai Dajiang (Group) Co said net profit leapt 60% year on year to 12.58 million yuan ($1.52 million) in the first half of 2001.

But a decision by Tricon, which owns hundreds of Kentucky Fried Chicken (KFC) outlets in China, to stop buying from Dajiang next month will add to the woes of a firm pinched by high feed prices and falling chicken prices, analysts said.

Japan's lifting of a two-month ban on poultry from China this week was unlikely to boost the company's results significantly, they said.

Still, investors crowed over first half profits.

Dajiang' stock surged 9.15% to end at $0.895. Its hard currency B shares have shot up more than 25% since Tuesday, when Japan announced the easing of the ban.

Dajiang, a venture with Thailand's C.P. Group , posted turnover of 867.62 million yuan for the first half, up from 734.83 million yuan in the same period last year, it said in a statement published in the Shanghai Securities News.

“Prices of chicken are pretty low, but we will do our best to be profitable in the second half, so that we can reap profits for the whole year,” company secretary Gu Deming said.

CHEAP CHICKEN, EXPENSIVE FEED

Dajiang said export prices for frozen and cooked chicken fell significantly, while in prices of corn and soymeal for feed led to an additional 46.6 million yuan in costs in the first half.

“Feed ingredients, such as corn and soymeal, are so much cheaper in other countries, making Chinese poultry less competitive in the world market,” said Wang Jun, analyst at Beijing Orient Agribusiness Consultant.

Dajiang's Gu denied Tricon's halt in purchase of Dajiang's chicken from next month would hurt financial performance. The company supplies about 300 tonnes of chicken to KFC monthly.

“KFC adopted the bidding system for its chicken purchases and prices are just too low. We would rather switch those sales to somewhere else,” Gu said.

But analysts said it would force the company to find new customers.

Dajiang made more than 14 million yuan in provisions for inventories in June due to import bans by Japan and South Korea, implemented because of concerns over bird flu.

Japan partially lifted its two-month ban on Tuesday, allowing imports of Chinese chicken broiler meat products, turkeys and eggs. Curbs on other Chinese poultry imports were still in place.

South Korea, a much smaller market for Dajiang, eased its ban in early July.

Dajiang will produce 80,000 tonnes of chicken products this year, exporting about 28,000 tonnes, mainly to Japan.

“The second half for China's poultry's industry is likely to be worse than last year, unless Europe opens up its market to China soon,” said analyst Wang.

“We'll see how much exports Dajiang can recover from Europe, which may be a bright spot.”

The European Union lifted a five-year old ban on Chinese chicken imports in May. Dajiang's net profits plunged more than 70% in 1997, the first year after the ban, analysts said.

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