Hong Kong, Dec 4 - Huabao International Holdings Ltd. , a leader in China's tobacco flavours and fragrances industry, projects 30 percent annual sales growth for the next three years as it eyes acquisitions in the food and beverage market, an executive said.
The company plans to expand into lotion and shampoo fragrances, but in the near future will focus on growing its food flavouring business by purchasing established firms, executive director C.K. Poon told Reuters in an interview late on Friday.
"In China, there is plenty of targets, plenty of companies for us to consider, but we will not exclude overseas M&A possibilities," Poon said.
Assuming we have continued economic growth, both the tobacco and food business will grow at the same pace of 30 percent per annum over the next three years, he said.
Huabao, which adds fragrances and flavourings to tobacco and food products and competes with China Flavors and Fragrances Co. Ltd. , posted sales of HK$458 million ($58.94 million) for the six months ended Sept. 30, up 29 percent from a year earlier.
For the next three years, tobacco would still account for 90 percent of Huabao's revenues, and food 10 percent, Poon said.
Huabao acquired Shanghai Kongque Flavors and Fragrances Co. Ltd. in 2004 to diversify into the food business.
The company counts Mengniu Dairy and China Yurun Food Group among its clients, and is aggressively seeking contracts with international brands looking for dominance in the Chinese market.
But it was only in August, after chairwoman Chu Lam Yiu's sale of Chemactive Investments Ltd. to Huabao for about HK$4 billion ($514.6 million), that the consumer electronics products distributor turned into a listing vehicle for Chu's flavour and fragrances business.
Chu started a cigarette filter trading business in 1989 and expanded into tobacco flavours and fragrances by relying on connections in the industry, according to Citigroup. She currently holds a 74.9 percent stake in Huabao.
On Friday, the company posted a net profit of HK$244.75 million for the April through September period, up more than three-fold from HK$69.7 million a year earlier.
Huabao controls an estimated 30 to 32 percent of China's tobacco flavours market and supplies flavours to most of China's top 10 brands, including Hongta, Baisha, and Honghe.
China's tobacco market was estimated to be worth 2.2 billion yuan in 2005, according to Citigroup. The state-run tobacco industry is consolidating, and Huabao predicts it can leverage its position as major clients seize more market share.
"(Consolidation) will drive the demand for our products," Poon said. "The bigger the better."
Huabao's shares rose 61.5 percent in the April through September period. Its shares hit a record of HK$4.25 before closing Monday's morning session at HK$4.20, up 2.69 percent.