Oversupply of oranges to ease, says Asian Citrus

Shares in Chinese fruit juice producer Asian Citrus moved further away from their 52-week low after full-year results topped expectations.

Revenue for the year ended June 30th rose 25.7% to RMB.1,766.1m (£178.7m) from RMB.1,412.6m (£136.4m) the year before, ahead of house broker Seymour Pierce's forecast of RMB.1,725m.

Revenue from sale of oranges grew by 9.9% to RMB.1,057.3m, helped by an increase of around 12.2% in the group's production to 243,421 tonnes but offset by 1.9% decrease in the average selling price.

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The production yield from the firm's Hepu Plantation decreased by 5.7% to 116,720 tonnes, mainly due to the ongoing replanting programme. The production yield from the Xinfeng Plantation increased significantly by 36.0% to 126,701 tonnes from 93,181 tonnes in the comparable year, as trees continue to mature and become more productive.

Profit before tax eased to RMB.756.2m from RMB.1,050.2m the year before. Earnings before interest, tax, depreciation and amortisation (EBITDA) declined 22.7% to RMB.876.7m (£88.2m) from RMB.1,135m (£109.5m) the preceding year. Underlying EBITDA, however, hardened by 12% to RMB.755.6m (£76.0m) from RMB.674.8m (£65.1m); these figures exclude items such as changes in the fair value of biological assets and share-based payments.

Adjusted earnings per share dipped to RMB0.62 (5.2p) from RMB.0.55 (5.3p) in the previous year.

A final dividend of RMB.0.13 has been recommended, up from the previous year's final divi of RMB.0.10. If approved by shareholders, the final dividend will lift the full-year dividend up to RMB.0.18, versus RMB.0.15 the preceding year. The board is committed to maintaining a dividend payout ratio of at least 30% of core net profit.

"Although China's economy is predicted to grow at a slower pace, the market for oranges should remain generally stable as they are regarded as a consumer product rather than a luxury good," explained company Chairman, Tony Tong.

An unseasonably warm winter in China led to a glut of oranges heading into summer but this over-supply is expected to ease off in the final quarter of calendar 2012.

As well as producing oranges, the group makes its own fruit concentrates, and sees excellent growth potential for this market.

"Our sound foundations augur well for our long-term success. We are one of the world's very few listed plantation companies with orange plantation assets and fruit processing facilities, operating in a highly fragmented market with strong barriers to entry. Despite the challenging circumstances we faced during the year, I am as enthusiastic and confident as ever in our ability to deliver business growth and shareholder value," Tong said.

Seymour Pierce beat the drum for its client, maintaining its "buy" recommendation and 50p price target, noting the shares trade on a multiple of just 6.6 times historic earnings per share.

JH