HONG KONG: Shares in China Huiyuan Juice Group, the largest pure juice and nectar maker on the mainland, slumped more than 5 percent yesterday, after the company warned that it may report a significant decrease in its first-half sales.

The stock ended yesterday in Hong Kong at HK$5.62, dropping 5.07 percent or HK$0.3, moving against the benchmark Hang Seng Index which finished up 2.72 percent, or 554.15 points, at 20,929.52.

Huiyuan said the company will post "an operating loss" in its interim results for the six months ended June 30, due to the uncertainties related to the Coca-Cola privatization proposal and the implementation of certain restructuring initiatives of the company.

"The economic benefits have not been reflected in the 2009 interim results," the company said in its profit warning statement filed to the Hong Kong stock exchanges.

The top juice maker expects its operation and financial performance will improve in the second half, after the uncertainties of the Coca-Cola takeover deal have been cleared and the economic benefits of the company's restructuring initiatives "gradually crystallize".

Analysts, however, said Huiyuan may encounter tougher competition in the juice industry in the second half, as Coca-Cola expands the development of its own juice products on the mainland. Lawrence Chor, a beverage analyst at Taifook Securities, said the proposed takeover deal by Coca-Cola may have only a slight impact on Huiyuan's business.

"The reason is not convincing enough," Chor said, "The deal may not have a direct relationship with its (Huiyuan's) business."

He added that rising raw material prices, intensifying competition and sluggish demand may have been a heavier drag on Huiyuan's business in the first half.

Securities house CIMB said Coca-Cola's plan to invest $2 billion in strengthening its business on the mainland will further trim Huiyuan's participation in the mainland diluted-juice drinks market.

The brokerage suggests Coca-Cola's juice brand Minute Maid may increase its market share in diluted-juice drinks to nearly 30 percent in 2009, compared with 6 percent for Huiyuan.

By the end of 2008, Huiyuan ranked first in pure juice and nectar markets on the mainland, with around 42.1 percent and 43.7 percent market share, respectively. The company also ranked the fourth in the juice drinks market, with around 7.3 percent last year.

Taifook has given a "buy" rating to Huiyuan, while expecting its shares to retrace to HK$4.11.

In September 2008, Coca-Cola offered HK$12.20 per share in cash to acquire Huiyuan. The $2.4 billion bid, however, was blocked by the central government for fear of the soft drinks giant's likely monopoly in the mainland pure-juice market.

The collapse of that deal has, contrary to some expectations, enhanced Huiyuan's reputation. In the meantime the company has said it will remain open to any new cooperation opportunities in the market.

(HK Edition 08/11/2009 page4)