United Food Holdings Financial Analysis: Net Profit Decline of 15.2%

1. Business Description

United Food Holdings Limited is an investment holding company incorporated in Bermuda. Its subsidiaries operate in three primary business segments: trading, additive-related products, and animal feed/traditional medicine. The company’s geographic footprint primarily spans Mainland China and Hong Kong. Its core operations include trading of food products, selling additive-related and antioxidant manufacturing machinery, and providing solutions for animal feed and traditional medicine production.

Industry Position

United Food Holdings operates in the food additive and animal feed industry, which is highly competitive and fragmented. The company’s position within the industry appears weak, with limited competitive advantages or clear market leadership specified in the report. The lack of meaningful revenue growth and significant losses raises concerns about its ability to compete effectively.

Revenue Streams and Customer Base

Revenue is derived from the sale of additive-related machinery and products for the animal feed/traditional medicine segment. However, the report indicates no revenue from continuing operations during the period. Attracting and retaining customers remains a challenge, with discontinued operations contributing minimal revenue of RMB 0.3 million compared to RMB 0.6 million in the previous year.

2. Financial Statement Analysis

2.1 Income Statement

Key Findings:

• Net loss for the period increased by 15.2%, from RMB 9.32 million in 2023 to RMB 10.74 million in 2024 [[2]].
• Administrative expenses decreased by 56.7% over the six months, but still remain high at RMB 3.51 million [[2]].
• Loss from discontinued operations grew significantly by 154.5%, from RMB 1.23 million in 2023 to RMB 3.12 million in 2024 [[2]].
• Finance costs rose by 1214.3%, reflecting a deteriorating financial structure [[3]].

2.2 Balance Sheet

Key Findings:

• Total assets decreased from RMB 169.51 million as of March 2024 to RMB 154.20 million as of September 2024, primarily due to reduced trade receivables and asset depreciation [[4]].
• Liabilities remained high, with current liabilities at RMB 68.7 million, highlighting liquidity challenges [[4]].
• Equity attributable to owners decreased from RMB 101.73 million to RMB 92.29 million, reflecting accumulated losses [[4]].

2.3 Cash Flow Statement

Key Findings:

• Net cash used in operating activities rose to RMB 3.9 million compared to RMB 0.9 million in 2023, driven by significant working capital outflows [[7]].
• Investing activities generated RMB 1 million in cash, primarily through refunds of deposits from potential business acquisitions [[7]].
• Financing activities used RMB 1.3 million, reflecting repayments to shareholders and other obligations [[7]].

3. Special Activities and Actions

The company decided to dispose of its equity interests in Chengde Purun Shengwu Zhiyao Co., Ltd, Hebei Xingrun Shengwu Keji Gufen Co., Ltd., and Benchmark Trade Limited. These entities are classified as discontinued operations, with the goal of improving profitability through restructuring [[8]]. Additionally, the company is addressing outstanding receivables and considering legal action to recover funds [[20]].

4. Dividend and Earnings

No dividend has been declared for the six months ended 30 September 2024, citing accumulated losses and the need for working capital [[22]]. Earnings per share for the period recorded a loss of RMB 0.05, with no improvement compared to the prior year [[12]].

5. Strengths and Risks

Strengths:

• Commitment to restructuring by divesting loss-making subsidiaries [[21]].
• Reduction in administrative costs over the six-month period [[2]].

Risks:

• Significant net losses and declining revenues [[2]].
• Liquidity challenges with high current liabilities relative to cash reserves [[4]].
• Outstanding audit disclaimer for FY2023 [[15]].
• Exposure to litigation risks for unrecovered deposits [[17]].

6. Recommendations for Investors

If You Currently Hold the Stock:

Investors holding the stock should consider selling their position due to the company’s continued net losses, high liabilities, and lack of meaningful revenue growth. The company’s ongoing delisting process further escalates risks.

If You Currently Do Not Hold the Stock:

Potential investors are advised to avoid investing at this time, given the weak financial performance, lack of dividends, and uncertainty surrounding the company’s restructuring efforts and delisting process.

7. Disclaimer

This analysis is based on the company’s financial report for the six months ended 30 September 2024. It is not financial advice. Investors should perform their own due diligence and consult with a financial advisor before making investment decisions.

View United Food^ Historical chart here