Guangdong Strong becomes shareholder of Shenhua

Guangdong Strong Group Co, which claims to be world's largest jelly and pudding manufacturer in terms of sales, has become the 10th largest shareholder in coal giant Shenhua Group Corporation Ltd, after buying more than 15 million shares in the company, Securities Daily reported.

Strong first appeared as a shareholder in Shenhua's third quarterly report. Analysts say that even if Strong had bought the stock at the lowest point during the third quarter, the total value of its investment would be worth more than 300 million yuan ($47 million).

Datong Securities analyst Yu Hong told Securities Daily that the cross-industry investment may be a result of Strong's preference for investing in large state-owned enterprises and it likely to be aimed at long-term return.

Despite the huge investment, Shenhua had a weaker third quarter, as net profit fell 8 percent year-on-year to 11.37 billion yuan.

The coal price has been in constant decline since last November, but recently started to rise slightly.

"While most coal enterprises are struggling with oversupply and falling prices, Shenhua Group stands out with a relatively stable performance," said Yu.

"Strong is probably betting on the economic recovery and Shenhua's long-term returns."

A number of coal enterprises posted losses in the third quarter, but Shenhua managed to make money thanks to its stable customer base and coal-to-oil project, added Yu.

In the first nine months of 2012 it achieved net profit of 36.56 billion yuan, a year-on-year growth of 6.5 percent.

"The stock is unlikely to surge, because profit margins in the coal industry are low," said Yu. "But they are also unlikely to plunge due to the company's stable performance."