Essentra PLC (LON:ESNT) has signed a joint venture (JV) agreement to establish a new cigarette filter company in China.
The FTSE 250 maker of plastic components will own 49% of the new company, China Tobacco Essentra (Xiamen) Filters Co, while four Chinese companies will own varying portions of the remaining 51%.
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The JV will produce specialist filters from a new facility in Xiamen in South East China, with Essentra to make an investment of £16mln once the partnership is approved by Chinese regulators.
Essentra expects construction of the new plant to begin in the first quarter of next year, with first production to begin shipping from November 2020.
Paul Forman, Essentra’s chief executive, hailed the JV as a “game changer”.
“The JV's onshore development and testing facility, together with local production, will enable us to work ever more closely with our partners in China to provide innovative special filter solutions", he added.
Analysts at Essentra’s house broker Peel Hunt retained their ‘buy’ rating and 500p target price for the group, saying the JV deal was “a key part of moving the filters division onto an improving profit trend”.
The broker expects a small earnings impact, around 1%, in 2020 as the JV established, followed by a small profit in 2021 and “the opportunity of material profit contributions thereafter”.
Investors, however, seemed relatively unmoved by the news as the shares dipped 0.4% to 425.2p in early deals on Wednesday.