As China sneezes… Zim companies to record mixed fortunes

via As China sneezes… Zim companies to record mixed fortunes – NewsDay Zimbabwe August 26, 2015

Local tobacco companies will face revenue pressures as the United States dollar receipts from sales will be affected by the depreciation of the Chinese yuan in the face of stagnant global demand and supply for the golden leaf, a leading brokerage firm has warned.


China has been experiencing an economic slowdown with independent economists projecting that its economy would grow by 3,1% from the 7% earlier projected by the Asian giant.

The slowdown has spawned the depreciation of the yuan and the major stock indices slumped more than 6% to an eight-month low in early trade yesterday, according to data from global news agency, Reuters.

In a research note, ABC Stockbrokers said tobacco companies would take a hit from the depreciating yuan.

“We also expect tobacco companies to face revenue pressure as USdollar receipts from tobacco sales going into 2016 come off with the depreciation of the yuan in the face of stagnant global demand and supply for tobacco. Companies that have a high exposure to the tobacco export industry, such as TSL may be worst affected by this,” ABC Stockbrokers said.

Latest statistics from the Tobacco Industry and Marketing Board (TIMB) showed in the current marketing season, China was the biggest buyer of the golden leaf after 20 858 215kg were shipped to the Asian country, raking in
$176 775 389.
It said local banks that committed to financing tobacco farmers would “possibly witness deterioration in their loan quality due to farmers’ reduced profitability”.

“FBCH that has been supporting tobacco farming over the past couple of years through their Tobacco Bill and CBZH [CBZ Holdings] with 28% exposure towards agriculture, should have a wider exposure to this risk among the listed banks, unless they lower their participation in this space as we go into this year’s farming season or insist on adequate security cover for loans of this classification,” the stockbrokers said.

TIMB chief executive officer Andrew Matibiri said the industry was still studying the implications of the economic slowdown in China.

“For now, we are studying the implication. Their [Chinese] agent is away in China,” Matibiri told NewsDay yesterday.
ABC Stockbrokers said retail companies were expected to enjoy a temporary widening of gross margins.

“Companies that retail clothing and electrical appliances have slowly been procuring more from China since China is proving to be a more efficient producer. As such, the yuan getting cheaper implies lower cost of sales for them,” ABC Stockbrokers noted.

“Truworths, Edgars, OK Zimbabwe . . . are among retailers that should benefit, though the degree largely depends on the extent to which they import from China.”

China has been making inroads on the continent riding on its governance neutral approach and has been hailed as an all-weather friend by some African governments that resent the West’s insistence on good governance, democracy and human rights.