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Jasper Moiseiwitsch

What happens when a company announces a fundraising on the back of a big drop in profit?
In the case of noodle and beverage producer Uni-President China Holdings - a rising share price.
The company on Friday posted first-half results in which it disclosed a drop in gross margin and profit, and a stunning 38.2 per cent dive in attributable profit to 355.4 million yuan (HK$447.4 million). Sales increased a slender 1.3 per cent.
On Sunday, the firm announced plans for a 1 billion yuan bond for listing on Taiwan's GreTai market.
It was a lot of information for investors to process but in the event, the impact was positive.
The company's share price yesterday rose 4.09 per cent to HK$6.61.
Analysts said the earnings results were in line with expectations and that Uni-President's core profitability was intact.
Profit in the previous corresponding period had been inflated by a 213 million yuan sale of plant and equipment to its parent firm. The income was a one-off and was seen as such by investors and analysts.
Uni-President also closed in June a HK$3.3 billion rights issue, which expanded its equity base and lowered gearing, giving it capacity to issue the new debt.
The company's borrowings dropped 7.8 per cent in the first half, and its gearing fell to 21 per cent from 36 per cent at the end of December last year.
Uni-President has two fixed-rate bonds outstanding, due in 2016 and 2017. Both are for 1 billion yuan.
Analysts still have reservations about the company, particularly about its gross margins, described as the best indicator of its near-term profitability. In this case, it is a negative one.
Uni-President disclosed a gross margin of 32.5 per cent for the first half, a drop of 1.5 percentage points, largely attributable to its money-losing noodle business.
The firm is locked in a price war with competitor Tingyi (Cayman Islands) Holding Corp for its noodles. Moreover, Tingyi is expanding its noodle range and analysts are wondering when or if Uni-President will respond with its own product expansion, which will increase capital expenditure and marketing costs.
"The market is expecting the competition to end soon. But this remains the biggest overhang for Uni-President," said UOB Kay Hian analyst Renee Tai.
"The reason Tingyi expanded its product series was that it was losing market share. It decided to expand to other flavours. Now Uni-President needs to catch up."
Uni-President is also contending with a declining market for instant noodles. It cited data from market researcher Nielsen showing the volume of instant noodle sales on the mainland dropping 5.9 per cent in the first half from a year earlier.
To address all these issues, Uni-President is hosting an analyst briefing today.


Uni-President stock rallies despite earnings dive and cash call

Uni-President disclosed a gross margin of 32.5 per cent for the first half, a drop of 1.5 percentage points, largely attributable to its money-losing noodle business.

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Stock gains 4pc even after noodle maker reports 38.2pc profit fall and taps market for HK$447m


What happens when a company announces a fundraising on the back of a big drop in profit?
