China Food has the right strategy - it's expanding margins by selling more low salt, non-genetically modified up-market soya sauce called Xaka to the nouveau riche of China's provinces. But success will be costly and profits may not return until 2013 - leaving few near-term catalysts for a share price rerating.
During the first half, China Food's profits were little changed thanks to decent sales of medium priced Hao Tai Tai (Good Wife) soya sauce in the eastern province of Shangdong. But China Food wants to do more and, through Xaka (Fresh Cut), it hopes to sell in Shangdong and the surrounding provinces - with a combined population of over 300m. Management has already invested £33m in its new soya sauce plant and is ramping up Xaka production. Xaka has been selected as the preferred soya sauce supplier to the Chinese Olympic team this summer, too.