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Flagging Asian Citrus reveals orange export plans

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Asian Citrus revealed plans to exploit China's growth as an orange exporter, to support revenues which dropped 14.5% in the last half of 2012, sapped by weak citrus production and a glut of pineapple juice.

The group said it was "exploring markets outside of China", after starting sales to Vietnam, which borders Guangxzi province, in which Asian Citrus has one of its plantations, Hepu.

If the Vietnam trial proves successful, "we will consider entering other markets" within the Asean trading bloc, Tony Tong Wang Chow, the Asian Citrus chairman, said.

"This is at a very early stage at the moment. But it makes sense to export if there is demand there," a person familiar with the company told Agrimoney.com.

Citrus trade balance

China has been roughly self-sufficient in oranges in recent years, with exports actually exceeding imports by 31,000 tonnes in 2011-13, on estimates from US Department of Agriculture officials.

A weaker 2012 harvest, thanks to persistent rains which dogged producers including Asian Citrus – whose own production fell 6.0% to 161,233 tonnes during the July-to-December half – is expected to reduce the gap between exports and imports to 10,000 tonnes in 2012-13.

The country is better known for its exports of tangerines and mandarins, which USDA staff see reaching 900,000 tonnes in 2012-13, up 7% year on year, and well ahead of imports of 10,000 tonnes.

'Temporary setback'

Asian Citrus's announcement came as it unveiled a 23% drop to 249.5m remninbi in underlying profits for the second half of 2012, reflecting a 14.5% drop in revenues to 892.0m remninbi.

Besides the drop in production, revenues were undermined by a destocking by fruit juice companies in the Philippines and Thailand of pineapple concentrate, cutting world values, and sending sales at Asian Citrus's juice operation tumbling 27%.

However, prices have continued to recover since September, after the end of the destocking exercise, while continued growth forecast for China's economy bodes well for domestic demand of juice and raw fruit.

The "disappointing" results of the latest half represented a "temporary setback", Mr Tong said.

"Our fundamentals remain strong [and] our oranges continue to be well received by customers."

Market reaction

The results prompted a mixed response from Liberum analysts, who retained a "buy" rating on Asian Citrus shares, saying that the "silver lining" to the below-forecast results "is the 2.374bn remninbi (£250m) net cash position and [the fact] that earnings should recover simply by virtue of the maturing of the company's three orange plantations and higher juice volumes".

However, "for this value to be released, evidence of improved trading is needed, but more importantly so is corporate action to address the balance sheet structure and recent corporate governance concerns", the London-based broker said.

At Seymour Pierce, analyst Sue Munden said that "whilst the results do represent a disappointing performance, the group still achieved a pre-tax profit margin of 28.6% and so remains a robustly profitable enterprise with considerable potential to grow".

Ms Munden restated a "buy" recommendation on the shares, and a price target of 50p.

The shares stood 4.3% lower at 30.4p in lunchtime deals in London.

By Agrimoney.com

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