Vitasoy International , Hong Kong's top soya milk producer, said on Friday that initial investments in Australia caused a slide in its net profits for the six months ended in September.
Executive chairman Winston Lo told a news conference that profits were also dragged down by increased expenditure in promotional activities in North America, its third-largest market.
The company announced a plunge of 25.83 per cent in its first-half net profits to HK$48.73 million (US$6.25 million) from HK$65.69 million a year ago. But turnover grew 10 percent to HK$1.1 billion compared with the previous year's HK$1 billion.
Vitasoy shares skidded 10.14 per cent to close at HK$1.24 on the news, but the stock has still packed in a 22-percent gain over the last 52-weeks. The company said it expects to face even greater pressure in the next 18 months as demand in Hong Kong, its core market, continues to weaken.
"This will place greater pressure on our margins, with promotional activities becoming even more aggressive as companies fight to protect volume in a shrinking spending environment," said the company in a statement.
Sales in Hong Kong, from which it derives about 55 percent of total revenue, grew by seven percent to HK$606.7 million from last year's HK$501.5 million, largely due to good response to its new products and an expansion of its school canteen business.
Still, the company said profit margin was squeezed by low pricing from other brands. As growth remains sluggish in Hong Kong, the company opened a new plant in Australia, a market that Lo expects to break even in about three years.
In the United States, Vitasoy consolidated its headquarters by moving its operations in the West Coast to the East Coast, to create long-term savings. For the second half, however, the company expects to make a provision of US$600,000 because of the move.
Lo said he expects its U.S. operations to break even in about two years and for the market to contribute about one-third of total revenue in three years. The U.S. market now makes about 22 percent of total sales.
Despite its diversification plans, investors said they were now shying away from Vitasoy stock, a long-time investor favourite among retail and food and beverage stock, in the face of an uncertain global economy.
"Their U.S. business is not doing that well, it's not time to get in," said a fund manager at a fund house that oversees US$1.5 billion in the region.
"Their local business also has nothing for anyone to be excited about," the fund manager added.