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Shares of Wei Chuan dive on product recall, food safety concerns
Central News Agency
2014-09-05 12:02 PM
Taipei, Sept. 5 (CAN) Shares of Wei Chuan Foods Corp., one of Taiwan's leading food product suppliers, took a beating Friday morning after the company announced the previous night it was recalling 12 products said to be made with recycled waste oil. Many investors have feared that the revelation that Wei Chuan used problematic oil to make its products has raised concerns over food safety, which is likely to adversely impact the bottom line of the food sector, dealers said. Selling in Wei Chuan shares spread to other food stocks, particularly edible oil makers, to send the entire food sector into a tailspin, they added. As of 11:16 a.m., shares of Wei Chuan had fallen 7 percent, the maximum daily decline, to NT$40.40 (US$1.35) with 1.87 million shares changing hands. Among the edible oil stocks, shares of Fwusow Industry Co. had lost 2.93 percent to NT$16.55 and shares of Formosa Oilseed Processing Co. had shed 2.39 percent to NT$22.45. The food sub-index was down 1.49 percent at 1,298.66 points, while the weighted index on the Taiwan Stock Exchange was 0.53 percent lower at 9378.53 points. "The oil issue revealed by Wei Chuan has hit consumer confidence in the local food business hard," Hua Nna Securities analyst Kevin Su said. "It was no surprise that shares of Wei Chuan faced heavy downward pressure soon after the local bourse opened, and the weakness continued with no signs of any immediate rebound." According to Su, there have been piling orders placed by investors, waiting to sell an additional 4.4 million Wei Chuan shares in the Friday morning session. The current share price of Wei Chuan is a new low since January 2013. "Wei Chuan's daily turnover reached about 1 million shares on average. The selling orders could push the stock down further at a time when many investors have been afraid that the impact from recycled oil problems will snowball," Su said. On Thursday, Wei Chuan said it was recalling 12 products, including its popular pork canned fiber and meat paste, after it admitted they were made using oil provided by Kaohsiung-based Chang Guann Co. since April. Wei Chuan promised consumers can have a refund of these products. The Chan Guann product used material provided in turn by an illegal company based in the southern county of Pingtung which, according to prosecutors, reclaimed oil from kitchen waste and even grease from leathter processing plants. Wei Chuan said the recall and refunds could cost it NT$45.83 million, and inventory of the problematic products could cost another NT$33.58 million, bringing total losses to about NT$80 million. "I am worried about the damage on Wei Chuan's reputation. The impact on a company's image could cost a lot more" than just those figures, Su said, noting it is the second time in a year that Wei Chuan has been found to use bad oil. In November of last year, Wei Chuan was caught using adulterated ingredients in 21 of its edible oil products. In the first half of this year, Wei Chuan posted NT$0.85 in earnings per share, down NT$1.09 recorded over the same period of last year. "Wei Chuan's profitability is falling. I am afraid that the latest food safety concerns will further squeeze its bottom line," Su said. "Even with today's steep decline, the stock's valuation remains high based on its bottom line. The stock could move in the doldrums in the near future." (By Tien Yu-pin and Frances Huang)
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