Date
24 July 2017
Housewives are not the only ones caught embroiled in the stock market roller coaster. Hong Kong-listed companies are similarly caught up. Photo: Reuters
Housewives are not the only ones caught embroiled in the stock market roller coaster. Hong Kong-listed companies are similarly caught up. Photo: Reuters

What happens when companies stray from their core business

Housewives are not the only ones caught up in a roller coaster that is the Chinese stock market.

Hong Kong-listed companies are similarly feeling its dizzying highs and lows. 

Some firms have reported unrealized investment profit while others have decided to cut their losses and run.

Sau San Tong Holdings (08200.HK), which conducts securities investment in addition to providing slimming, beauty and healthy products and services, is one such company.

The board of directors has decided to explore new opportunities to diversify its businesses.

Beauty products accounted for HK$1.39 billion yuan (US$213.8 million) of sales in fiscal 2014-2015, about 95.7 percent of revenue.

In March, it launched a securities investment unit and began offering wealth management products from banks and other financial institutions.

As of end of June, the company had swung back to profit — HK$91.96 million in the first quarter.

It reported a HK$5.1 million loss for the same period in the previous year.

The loss was attributed to an “unrealized” profit of HK$110 million from the newly established securities investment business.

The company sold shares in July to raise HK$175 million, of which HK$50 million was earmarked to develop the securities business.

Sunrise China Technology Group (08226.HK) is not as lucky.

The investment holding company is engaged in environmental-related activities and commodity trading, as well as in natural resources, garments and accessories.

In August, it expanded into the securities investment business, targeting Hong Kong-listed securities and investment products issued by banks and other financial institutions.

Sunrise bought about 200 million shares of China Mobile Games and Cultural Investment (08081.HK) for HK$20.05 million.

It said it was attracted by the performance of the company’s online gaming business and the 24.24 percent discount.

China Mobile Games also provides healthcare-related services, money lending and investment advice in listed securities.

Sunrise divested its holding in China Mobile Games and Cultural Investment within two weeks and got HK$18.54 million, a loss of HK$1.45 million.

It’s sensible for listed firms to invest excess capital.

But investors should look closely at companies that spend too much on securities investment and often end up losing large sums of money.

This article appeared in the Hong Kong Economic Journal on Sept. 18.

Translation by Julie Zhu

[Chinese version中文版]

– Contact us at [email protected]

JZ/JP/RA

columnist of the Hong Kong Economic Journal

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