Asian Citrus Holdings shares dropped 5% to amongst their
lowest levels in the last three years after China's biggest orange grower
confirmed a drop in profitability, thanks to setbacks from heavy rains to
The group said that, in results for the July-to-December
half to be released next month, its turnover was "unlikely to exceed" the
figure for the same period of 2011, while its core earnings were "expected to
record a decrease".
The forecast reflected a cocktail of factors, including a
6.0% drop in winter orange production blamed on the impact of a replanting
programme at the group's Hepu plantation, and on "unstable weather and
persistent heavy rainfall" which limited output at the Xinfeng site.
The conditions had also prompted an increase in consumption
of pesticides, to tackle bugs encouraged by the damp, and fertilizers, to
replace those leached by the inundations.
Furthermore, higher labour bills, "incurred as a result of
the general wage inflation in China", where salaries are increasing at
double-digit rates a year, had raised costs, while selling prices of pineapple juice
concentrates had been depressed by a splurge of sales by Philippine and Thai
The group has, until its 2012-13 period, achieved a record
of consistent growth, with underlying earnings in the last financial year more than double those two
The statement send Asian Citrus shares down 3.9% to 27.5p at their close in
London, taking them further below their high of 88.75p reached in November 2010,
despite a relatively upbeat reaction from analysts at Liberum Capital.
The broker restated a "buy" rating on the shares, saying
that while the group's "operational performance has been disappointing", the
growing maturity of its plantations and a return to "normal" weather "should
drive production recovery and growth over the forecasting horizon".
"Asian Citrus is undervalued but we acknowledge it may
remain so until newsflow improves."
'About trust in the
Other events which have depressed the stock include the sale
by Tong Wang Chow, the Asian Citrus chairman, of 50.0m shares in the group in
November, against a backdrop of concerns over accounting at Chinese companies
stoked by investigations at the likes of Sino-Forest Corp.
Seymour Pierce analyst Sue Munden last week, restating a "buy"
rating on Asian Citrus shares, said that the stock's "price performance has not
only been about the numbers - it is more about sentiment and trust in the
"However, the discount to peers, of about 50% to the HK
China Enterprises index, is, we believe, overdone," she added.