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Past 12 months have been sweet for China's soy sauce maker

Haitian's profits grow as Chinese consumers dine out more often.


FOSHAN Haitian Flavouring & Food Co is emerging as a star among consumer staple stocks worldwide as China's largest soy sauce maker taps booming growth in the country's catering industry.

Shanghai-listed shares of Haitian soared 66 per cent in the past 12 months, making it one of the top-five performers among the world's largest consumer stocks, according to data compiled by Bloomberg.

The stock's 29 per cent rally this year stands in contrast to a 18 per cent decline by the CSI 300 Index. This is partly due to US-China trade tensions sparking demand for shares of domestically-focused sectors.

The strong rally is also making Haitian look expensive as the stock is trading at 43 times earnings forecast for this year, compared to 25-34 times for most Shanghai- and Shenzhen-listed condiment firms tracked by Shenyin & Wanguo Securities Co. Yet analysts say the valuation premium is justified, citing the growth potential of China's catering industry and Haitian's position in the industry.

"For an industry leader with stable cash flow, investors are willing to assign a valuation premium," said China International Capital analyst Lv Ruochen.

As Chinese consumers dine out more, Haitian's profits have been growing. The firm has registered net income growth of more than 20 per cent for seven straight quarters and the figure is expected to grow 25 per cent this year and 26 per cent in 2019, data compiled by Bloomberg showed.

About 60 per cent of Haitian's sales come from the domestic catering industry, whose revenue was estimated to have expanded 20 per cent to 3.9 trillion yuan (S$780 billion) last year from 2015 and is on track to exceed 5 trillion yuan in 2020, according to a People's Daily report in January.

The Chinese soy sauce market is expected to grow 28 per cent to 86.2 billion yuan in five years through 2022, according to data from Euromonitor International.

To be sure, the soy sauce maker's heady growth isn't without risks. In its interim report, Haitian noted that its business would suffer if the prices of soybeans and sugar, the main raw materials in the condiment's production, increase. Higher tariffs levied by China on US soybeans amid escalating trade tensions may boost domestic soy prices, analysts say.

Haitian's share price may have plateaued for now. The 12-month consensus price target set by analysts for Haitian stands at 71.69 yuan per share, data compiled by Bloomberg show. The stock rose 1.2 per cent to 69.29 yuan on Thursday.

Rick Su, a fund manager at Capital Investment Trust, said consumer staples should do well in the second half in light of uncertainties over China's economy. BLOOMBERG

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