Property

China Tianyi Holdings

China Tianyi HoldingsPeople prefer orange juice to orange whenever the economic standards of a country rise. China Tianyi Holdings (0756), which was established in 1993, has extensive experience in producing concentrated orange juice. Sin Ke, board chairman and chief executive director of China Tianyi, said in our interview that the group endeavours to produce quality and yummy concentrated orange juice step-by-step rather than engaging in fruit or agricultural business. China Tianyi Holdings, among concentrated orange juice producers in China, takes a leading position in production capacity and processing capability.

In China, sizable citrus plantation areas are mainly located in Chongqing, Hunan and Fujian where sweet oranges are cropped for processing. As such, the group established various production bases in relevant areas including Summi (Fujian) Food Co. Ltd, Sanming Summi Food Co. Ltd, Chongqing Tianbang Food Co. Ltd, Huaihua Oujing Fruits Ltd, Chongqing Shangguo Agriculture and Technology Co. Ltd and Fujian Sanming Tianyi Agricultural Development Co. Ltd (福建三明天溢農業開發有限公司), most of which are operated on lease contracts. Particularly, the area of the orange farms in Chonqing and Fujian reaches 61,000 mu. Sin stresses that the backing of orange farms helps balance the operation security and hold citrus prices steady.

The group chooses to set up orange farms where new species of orange trees are planted in Chongqing so as to expand production capacity and cater for the demand in local areas. Sin added that it needs 12.5 tons of fresh citrus for making 1 ton of concentrated orange juice, therefore increasing the production capacity in Chongqing will sharply cut logistics and transportation costs, thereby directly boosting profit for mid to long term. More importantly, Chongqing municipal government strongly supports the citrus industry, granting a site of 125,000 mu for the Chongqing orange farm of the group, which is expected to upsize by an additional area of 30,000 to 40,000 mu in early 2012 for industry development. The management hopes that the group will become the world’s top six orange juice makers three years from now. One should know that the larger the production size, the lower the costs and higher the profit margin. Brazil is now ranking the top among the world’s orange juice producers, followed by the USA, China, Israel and certain small European nations. The group hopes that it can make contribution for China’s concentrated orange juice market.

Reports show that global citrus production totaled 54 million tons in 2011. Sin admitted that the group only accounts for 10% to 15% of market share in China whose demand for orange juice surges by 80,000 to 100,000 tons each year, hinting that there is at least 75% to 80% growth potential in the market. Despite huge business opportunities in China, Sin believes that the group is now facing a number of challenges which are resolvable. Firstly, it is necessary to accelerate the establishment of the plantation field; secondly, it has to secure more sweet orange types for processing. In addition to the construction of orange farms, the group is now specializing in the production of three major types of concentrated juice: first, producing orange juice with 550% condensation; second; manufacturing fibre concentrated orange juice in the production processes of frozen concentrated orange juice fibre; third, processing the residues in the making of orange juice. Therefore, the manufacturing of orange juice is correlated to scientific research, and the group has founded a research centre for expanding the by-products of concentrated orange juice. Sin noted that concentrated orange juice, orange peel, orange oil and orange sac can be altered into raw materials for orange juice production, animal feed, food additives, orange juice and other food.

China Tianyi published the annual results for the year ended 31 December 2011 in late February, posting a net profit of RMB175 mln and gross profit of RMB180 mln, a year-on-year increase of 33.5% and 29.6% respectively, thanks to the favourable agricultural policy including the abolishment of business tax of fresh fruit sales and income tax of all businesses. As for the investment spotlights, Sin pointed out that orange juice is one of the world’s consumer goods with greatest demand, adding that investing in orange juice is advantageous to one’s health. Moreover, citrus production is a time-honoured industry which will never fall. As orange juice is a daily necessity in both the East and West with strong domestic demand, investing in a citrus company would probably bring compelling returns.