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Amy Lau, China Green's Assistant VP: Photo by Terence Wong

CHINA GREEN Holdings Ltd (HK: 904), a Hong Kong-based producer of healthy food choices in the fresh produce and processed categories, believes that its focus on nutritious fare targeting consumers intent on staying fit and trim will lead to ever fatter margins down the road.

The Hong Kong-listed firm, with production facilities located mainly in the southeastern Chinese province of Fujian, has been cooking up success on the results front, with audited year-to-April revenue up 22% and gross profit rising 18%.

It credits its recent success and enviable growth to a focus on the health-conscious consumer, as well as a strong position in the fresh produce export market appealing to customers in places like Japan, South Korea and Russia who must turn to China Green’s year-round growing season to secure supplies of vegetables during long winters back home.

“We chose early on not to compete with (Chinese beverage and instant noodle giant) Kangshifu and other established players because we are instead trying to cultivate and then dominate the healthy foods market,” said China Green Assistant Vice President Amy Lau.

In a recent interview with NextInsight, Aries Consulting and a group of Greater China fund managers, she said China Green picks its markets carefully and doesn’t want to overextend itself too early.

“We focus on three major regional markets in the PRC, namely: the South, the North, and major cities in between. It took us three years to become a ‘national brand’ using this strategy,” Ms. Lau said.

It also was focused on three distinct product categories which helped avoid overexposure to any one segment should crop failures, natural disasters or other unforeseen market fluctuations take place.

For the 12 months ending in April of this year, total revenue grew 22% to 1.55 bln yuan, among which 26% was from sales of fresh produce, 41% from processed products, and 33% from branded foods and beverages like juices and instant noodles.

Taking a further peak behind the numbers, it is interesting to note that for the latter category – branded F&B – 100% of output is sold in China, whereas 95% of its processed foods such as canned corn is exported.

Meanwhile, around two-thirds of its fresh produce is sold domestically, with most of the exports destined for Japan.

  
China GreenYr-to-April 09Yr-to-April 08% change
Revenue (RMB)1.55 bln1.27 bln22%
Gross profit800 mln677 mln18%
Net profit455 mln471 mln(-3.4%)
  
“For the past reporting year, our two biggest revenue drivers were sales of beverages and instant noodles. Of these, drinks grew much faster in China than did instant noodles. We just have one production line now for drinks, but looking to add another soon,” she said.

China Green was eager to let consumers know that the Hong Kong firm was firmly committed to meeting all international quality standards for its output, utilizing the most hygienic production facilities possible, and continuing to invest in advanced benchmark-setting processing equipment.

“We don’t advertise as much as our competitors. However, in 2005 we began brand-building in China and successfully executed a gradual market development strategy by entering into selected provinces one at a time.”

She said that word of mouth and product exposure verging on saturation is helping the firm boost its brand without breaking the bank, and also sheltered it from direct competition from local sector heavyweights like Kangshifu and Uni-President.

“We don’t sell to supermarkets, we sell to small shops. And we don’t run into payment problems because we require that they must all pay up front upon delivery because small shopowners do sometimes run off during downturns.”

Japan keen on greens

Japan’s consumers are known the world over for being very demanding when it came to quality, and this has sometimes been used by Tokyo as a ploy to keep out imports of all types.

However, long and chilly winters in the land of the Mikado mean that the country’s 125 mln consumers have to look abroad during the cold season if they want fresh fruits and vegetables to grace their dinner tables.

China Green to the rescue.

  Stock Performance Chart for China Green (Holdings) Ltd
  
“During the winter, Japanese can only get our fresh vegetables, and there are no import tariffs on our frozen fresh produce to the country. So during these months see a big uptick in our fresh produce orders, which we freeze and immediately export, mainly to Japan but also to South Korea and Russia,” Ms. Lau said.

And there was an upside to the practice.

Not only were profit margins for fresh produce exports higher than domestic sales (58% vs 47%), but China Green saw little unused output.

“We can use our leftover vegetables from fresh sales to make processed/canned foods and beverages, so there is little that goes to waste,” she said.

Japan is an important market for China Green, accounting for 45.1% of its total exports in the year-to-April, while Europe took 24% and other Asian countries stood at 23.3%.

And to ensure that China Green lives up to its image as a healthy, high-quality food grower and processor, it makes sure that its famers and workers are all on the same page, quality-wise.

“We prefer to keep control over all phases of production so we own all our farms. We don’t do any contract farming,” Ms. Lau said.

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