HONG KONG: Uni-President China Holdings Ltd and Yantai North Andre Juice Co Ltd said they plan to set up a beverage joint venture, bolstering their alliance and aiming to grab a bigger share of the highly profitable mainland beverage market.

Uni-President, the mainland unit of Taiwan's largest processed food producer, Uni-President Enterprises Corp, has raised its holdings in juice concentrate maker Andre Juice to 15 percent from about 5 percent late last year.

The two companies will each own 50 percent of the joint venture, which will need a total investment of 200 million yuan, a joint statement filed by the two companies to the Hong Kong stock exchange said.

The new firm will be set up in Shandong province, where Andre Juice operates its production base.

It will principally engage in the business of OEM processing and sales of different types of beverages, including fruit juice, tea, dairy drinks, mineral water, jelly, flummery, cereal products, fruit puree and soybean milk, the statement said.

Analysts said the latest venture by the two firms reflects Uni-President's apparent ambition to outdo its leading rivals, Tingyi (Cayman Islands) Holdings Corp and China Huiyuan Juice Group Ltd.

"The mainland beverage market is very profitable and has huge potential for growth. Every player wants to grab a bigger share of the cake," said Matthew Kwok, research head at Tanrich Securities Ltd.

He said the latest partnership between the two firms was a prelude for more cooperation in the future.

"It won't surprise the market much for Uni-President to ultimately merge with Andre Juice," the analyst said.

Growth by acquisitions will always be more effective and faster in expanding market shares, he said.

Lawrence Chor, an analyst with Taifook Securities Ltd who covers food and beverage firms, echoes Kwok's view, saying that "the odds are high for Uni-President to further raise its stake in Andre Juice and even fully acquire the latter in the future."

Both analysts believe that the joint venture will bring synergy to both partners.

"Andre Juice, as an OEM producer, will effectively expand its business by virtue of its share in the joint venture," said Tanrich's Kwok said.

Andre Juice said the joint venture will boost its sales in juice concentrates and help it to penetrate the domestic market. The company currently exports most of its juice concentrate production.

On the other hand, the partnership will likely help Uni-President reduce its production costs as it will very likely outsource some production to the joint venture, Kwok said.

The partnership will boost the group's sales and help it to penetrate the Shandong market, Uni-President said in the statement.

However, Taifook's Chor believes that earnings contributions from the joint venture to both partners will likely be moderate initially as the scale of production of the joint venture is not large, considering that total investment is just 200 million yuan.

The share price of Uni-President closed up 3.2 percent to HK$3.92 on Friday, while that of Andre Juice was down 1.3 percent to HK$0.39.

(HK Edition 06/13/2009 page2)