At least 31 Guangdong-based manufacturers are actively seeking acquisition opportunities as their smaller rivals face serious threats of closure, a leading player in the region said.

Hop Fung Group, a leading paper box maker in the southern province, said the company is reviewing a few potential targets in the region for a "bargain deal".

"At least another 30 companies would do the same and there are many good stuff to choose from," said Sam Hui, chairman of Hop Fung, told reporters at a luncheon yesterday. Hui, however, didn't reveal any name of the companies Hop Fung has been eying.

Caution

Credit Suisse estimates some 60,000 export-oriented factories - or a third of those operating in Guangdong - will cease to exist within three years, plagued by the yuan appreciation, soaring labor cost along with rocketing material costs.

Hop Fung, the only Hong Kong-listed paper box manufacturer with upstream operations, said the current financial market turmoil made the company halt its purchasing process. "We need to be cautious at the moment," Hui said.

He also said that the company will adopt a prudent strategy for overseas expansion. While bigger home rivals Nine Dragons and Lee & Man are planning to set up production bases in Vietnam because of cheaper labor and material costs there, Hop Fung's focus will remain on Guangdong, Hui added.

"Vietnam may have low coal and water prices, but the country's business environment is poor. There is vast room for development at home," Hui said.

Confidence

Vietnam's lower costs might be good for solely upstream players like Nine Dragons and Lee & Man, he added.

Kenny Lau, an analyst at Credit Suisse, thinks the issue of oversupply in China's paper market has become a big concern for investors, because the country's slowing exports will squeeze the demand for packaging carton boxes.

However, Raymond Lee, chief executive officer of Lee & Man, argued: "We still see some shortage in the marketplace."The growth rate is slowing but demand should expand about 7 percent to 8 percent this year, Lee said in July.

As the paper supply gets saturated, Hop Fung plans a capital expenditure of HK$50 million in the second half this year to develop its downstream business - paper box manufacturing. The group had capital expenditures amounting to HK$120 million for building new upstream plant and acquiring kraft linerboard machinery.

Hop Fung's first-half net profits increased 9.2 percent year-on-year to HK$50.1 million from HK$45.9 million.

The material costs will drop in the second half and help improve the group's profit margin, Hui added.

Editor: Yan