Tsit Wing 1Q 2007 results on 14th May 2007, pleasant surprise

Tsit Wing's first half in 2006 was good. When the 2nd half took a beating, I thought its 1Q 2007 will follow the downward trend due to intense competition in the food and beverage market in Hong Kong and PRC. Hence the profit growth in 1Q 2007 (a negligible increase of 2.2%, better than negative) came as a pleasant surprise.

However, this came amid a dramatic increase in sales by 63.5% in PRC. But why did the profit only edge up 2.2%? Two things came to my mind:

1. Hong Kong accounted profit dropped dramatically?
2. PRC sales involved mainly high volume low profit margin sales?

These questions can only be answered either at the AGM, or taken from its Annual Report's segmental breakdown next year.

On a separate note, the general erosion of profit margin came as no surprise due to the diversification in business into groceries.

One interesting point to note in the results statement was the line, quoted here: "...Some of the coffee and tea bistros who had switched to cheaper suppliers in 2006 began to revert to us as the use of lower quality products were hurting their business...". The question I had was then, how many of them amonst the those lost and is that sustainable? Only time will tell and I'm prepared to give Tsit Wing more time (for now).