China Food Company

AIM-listed soya sauce maker China Food is looking to get back on track following a tough 2009 for its animal feed business.

Headed by CEO Raphael Tham, China Food's sales declined by 21% to RMB 323.6m (£30.1m) in the year to December, as its animal feed operation, which accounted for 58.3% of total turnover, suffered a 35.5% sales reverse to RMB 188.7m. This decline reflected a slowdown in meat consumption by Chinese consumers as well as increased competition in the market. Pre-tax profits for the group fell from £5.2m to £2.8m.

John McLean, non-executive chairman and also chairman of 20% shareholder Albany Capital, says China Food, which sells soya sauce locally in China's Shangdong province, with a population of 94m, is well placed to profit from economic growth in the Peoples' Republic. The expanding group, which opened a new soya sauce factory in May of this year and recently launched a graduate training programme, is pinning hopes on the increasing affluence of the Chinese consumer and is developing a number of more expensive soya sauce products for the expanding middle class.

In China, insists McLean, 'soya sauce is like olive oil is in Britain, with the most expensive bottles in Beijing selling for RMB 40 (£4)' and he says it will be a while before China Food considers selling product overseas, since there is so much growth to go for in the burgeoning domestic market.

Forecast by house broker finnCap to grow revenues almost 20% to £36m this year, with pre-tax profits recovering to £3.8m, shares in China Food, recommended by Growth Company Investor in March at 28.5p, are not overly expensive, trading on just under twelve times earnings. Given a cash-generative model that should ensure growth can be maintained long-term, we think China Food still represents good value.