OREANDA-NEWS. February 16, 2015. Fitch Ratings says that the profit warning issued by Want Want China Holdings Limited (Want Want, A-/Stable) on its 2014 results has no immediate impact on its ratings as the underlying operational weakness is a temporary rather than sustained phenomenon.

Want Want expects its profits to record a mid to high single-digit decline. Fitch believes that Want Want's soft operational data are due to the seasonal factor of the Chinese New Year timing, sluggish gift pack sales from China's ongoing anti-corruption campaign, increasingly intensifying competition in the dairy sector and high milk powder input cost in 2014. However, with the easing of imported milk powder price from 4Q14, Want Want's margin should improve in 2015.

One of Want Want's key strengths that cannot be easily replicated is its exclusive nationwide distribution network of over 350 sales offices and around 8,000 distributors for its food and beverage products. The continuing refining of the distribution system would lend support to its sales recovery amid a sluggish consumer environment. For instance, Want Want started pushing less popular products into smaller retail points of sales under 200sqm from end-2014.

Want Want's credit profile is still strongly supported by its net cash position since its IPO in 2008. Fitch believes this is a result of a continuous positive free cash flow, the company's history of organic growth and its aversion to acquisitions. Want Want's ratings are based on Fitch's view that the company will continue to maintain a net cash position.