Zhou Hei Ya profit falls 15% as channel expansion squeezes margins

Braised snack chain Zhou Hei Ya International Holdings Co. Ltd. (1458.HK) said on Thursday that its revenue rose 19.5% year-on-year to 1.46 billion yuan ($217 million) in the first half of the year. Its gross profit increased 11.6% to 799.9 million yuan, while its net profit fell 15.2% to 91.5 million yuan. Its net profit margin fell to 6.3% from 8.8% a year earlier.

The company said the revenue growth was mainly driven by its channel business. Overall revenue from online and offline channels jumped 80.4%, including a 37.4% increase online and a 207.2% surge offline. Zhou Hei Ya has deepened cooperation with channels including Sam’s Club and Pang Dong Lai, while its nationwide points of sale now exceed 50,000. Sales of its “medium-shelf-life series” topped 50 million yuan during the period.

But rapid expansion of the channel business also weighed on the company’s profitability. With channel sales carrying lower gross margins than Zhou Hei Ya’s store business, coupled with higher raw material costs, the company’s overall gross profit margin fell to 54.7% from 58.6% a year earlier. Selling and distribution expenses also rose 24.9% to 589.2 million yuan. Zhou Hei Ya operated 2,972 retail stores as of the end of June, 108 more than a year earlier.

Zhou Hei Ya’s shares opened flat on Friday and were trading at HK$1.28 by the midday break, up 2.4%.

By Lee Shih Ta

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