Companies like Sino-Forest and Migao will benefit not only from cheaper imports, but also because they report financial results in dollars, while their costs and revenue are both almost entirely in renminbi.
By breaking the yuan's peg to the dollar earlier this week, China injected lifeblood into its nascent financial markets by introducing currency volatility, a must-have for speculators eager to punt on the yuan
"We believe Migao will benefit most from the rise of the renminbi because it imports potash from Russia," Canaccord Genuity analyst Michael Deng said.
He estimates that potash represents 55 percent to 60 percent of the cost of goods sold for the operator of fertilizer production plants in China.
"From an accounting standpoint, when they (Migao) translate themselves back into Canadian dollars from the yuan, we are definitely going to see a bump up in the results as a result of the re-evaluation of the yuan," Chardan Capital Markets' analyst Tim Tiberio said.
Sino-Forest, which mainly operates commercial forest plantations in China and imports logs and sells them in the domestic market, has about 347,000 hectares of forestry plantations in southern and eastern China.
"We estimate this sensitivity at approximately an $8 million increase in net income for a 1 percent annual increase in the renminbi," RBC Capital Markets analyst Paul Quinn said of Sino-Forest which reports results in U.S. dollars.
Hanfeng Evergreen Inc , a manufacturer and seller of controlled-release fertilizers to China, may also gain from the currency translation.
However, Cathay Forest Products Corp , which mainly plants fast-growth saplings and acquires land-use rights to timber properties in China, may not be as lucky.
The company is not expected to benefit as much from the translation gain, given that the bulk of its gross profit this year is expected from harvesting operations in Russia, says analyst Deng.
Going forward lower raw material import prices may result in a fall in product prices in China, eventually reducing gains for importers and the pressure on exporters, he added.
"This is more of an accounting benefit than a major change in export-import dynamics," Chardan Capital's Tiberio said. (Reuters)
