HENG TAI (00197) issues profit warning, expecting annual net loss to increase by approximately 56% to HK$196 million.

HENG TAI (00197) announced that the group is expected to incur a net loss of approximately 196 million Hong Kong dollars for the financial year ending on June 30, 2024, representing a year-on-year increase of about 56%. This is mainly due to impairment losses of about 113 million Hong Kong dollars on certain assets and investments in the upstream farming business (no impairment losses in the 2022/23 financial year). The Board notes that the operating environment of the group remains challenging for the following reasons: economic growth continues to be hampered by weak market demand following the real estate crisis and the COVID-19 pandemic; domestic product competition remains fierce; adverse weather conditions continue to threaten the group's upstream farming operations; and the consistently high interest rate environment significantly increases financing costs and hinders new investments. In view of the above unfavorable conditions, the group adopts a conservative approach towards the development of the upstream farming business and lowers its expectations for the future operating performance of farmland and agritourism businesses. The group has conducted valuation on certain assets and investments in the upstream farming business based on income approach to calculate their utility value. To reflect the risks associated with the unfavorable factors affecting the upstream farming business, the management has prepared profit and cash flow forecasts using a more conservative benchmark compared to the previous financial year's forecast, such as lower sales growth, lower gross profit forecasts, and higher discount rates, resulting in a decrease in future cash flows, and consequently impairment losses on the carrying value of the assets.