CRE slows growth after Tesco deal

China Resources Enterprise Ltd said on Thursday that it will slow down the opening of new stores in China and focus more on integrating operations with Tesco Plc this year.

"Our major task this year is to integrate Tesco's 134 stores, and we expect to profit in about two to three years," said Frank Lai, chief financial officer of the Hong Kong-listed consumer goods conglomerate.

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The two companies agreed on a joint venture in October. Tesco will hold a 20 percent stake valued at HK$4.32 billion ($556 million). CRE will hold the rest.

Lai said that regulatory approval may come in May.

Tesco China's retail business reported a net loss of 1.793 billion yuan ($288 million) in 2013.

Jacqueline Ko of Kim Eng Securites (Hong Kong) Ltd wrote in a note that the potential full absorption of Tesco's loss will drag CRE's retail unit into losses, even factoring in potential synergy in the northern part of China.

As of Dec 31, CRE had 4,614 retail shops in 28 regions of China, both self-operated and franchised.

About 240 new shops were opened in the Chinese mainland last year. Lai said the company may slow down its retail network expansion and open 50 to 100 new stores in mature regions in the mainland this year.

The company has businesses in retailing, beer, food and beverages. Sales rose 16 percent last year to HK$146.4 billion. Retailing is its core business, contributing 65 percent of revenue.

Profit fell 52 percent to HK$1.9 billion.

The company said it will expand into third- and fourth-tier cities, as well as into counties, towns and villages.

Dickie Wong of Kingston Securities Ltd said that CRE is well-positioned and moving in the right direction.

"Purchasing power in third- and fourth-tier cities in the mainland is very strong and [those cities] could be the driving force for CRE in the future," said Wong.

CRE is held by China Resources National Corp, a State-owned enterprise.

CRE shares rose 1.23 percent on Thursday to HK$19.76.

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