China Resources Enterprise Ltd., the partner of SABMiller Plc in China, might spend almost HK$5.5 billion ($707 million) on acquisitions by the end of the year as their first-half revenues more than tripled. The shares dropped.
Net profits for the state-owned company climbed to HK$4.24 billion in the first half from HK$1.16 billion last year on heaving growth at its retail unit, which has 2,900 stores. China Resources, in June, announced that it was buying control of Pacific Coffee Group, Hong Kong’s second-biggest coffee chain, affecting Starbucks Corp.’s leadership on the mainland.
China Resources is planning to open coffee shops at some of its 200 5,000 square-meter (54,000 square-feet) hypermarkets, facilitating relaxation to customers. Starbucks has about 380 retail stores in China and seeks to have “thousands” there in due course, said CEO Howard Schultz.
China Resources slid 2.7%, the maximum since July 30, to close at HK$30.70 in Hong Kong trading. The stock has jumped 8.3% this year, as against 5.8% drop in the standard Hang Seng Index.
The stock’s rating was slashed to “neutral” from “surpass” by Macquarie Securities Ltd. market analyst Leah Jiang in a note to clients. Although Jiang believes in China Resources Enterprise’s long-term growth prospective, he thinks the valuation may limit future share-price benefit. Jiang has an estimate of HK$31.30 per share.
China Resources is trading at 35.7 times projected revenue, as against 24 times for competitor’s retailer Dairy Farm International Holdings Ltd. Tsingtao Brewery Co.’s Hong Kong-listed shares are trading at 29.8 times the estimated earnings.
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