Luks puts faith in new markets
SINCE becoming a China play in the early 1980s, Luks Industrial Company's interest there has grown such that the mainland now accounts for more than 75 per cent of sales.
However, this will change as returns from the company's Vietnam investments start bearing fruit.
Management forecasts that country will account for 50 per cent of profits by 1996.
The company's traditional business is manufacturing televisions, but it is diversifying into property in the mainland.
In Vietnam, this diversification goes even further; into cement, plywood production as well as property.
The development of these new markets will help Luks boost the company's somewhat unsteady turnover.
The diversification lessens the importance of the consumer electronic operations, which account for just over 50 per cent of profits.
An agreement was reached in 1991 to set up a joint-venture plywood-processing plant in Ho Chi Minh City.
The plant, planned to have an annual production capacity of 34,000 to 40,000 cubic metres, is scheduled to begin operations at the end of this month.
The price of plywood is US$550 (HK$4,300) a cubic metre, on which the net profit can be as high as US$230.
Production is solely for export. Management hopes the plant will contribute US$5.6 million to profits in 1994 and US$7 million in 1995.
The company's other investment in Vietnam is in cement. The total investment in the joint venture is about US$30 million.
Luks has an 80-per cent stake, with Thua Thien Hue Buildings Material Manufacturer Company holding the remainder.
The venture's first production line, due to begin operating by the middle of 1995, will have a capacity of 700 tonnes a day. The second line will come on stream a few months later, doubling capacity to 500,000 tonnes a year.
Management believes a profit of US$13 million can be achieved by 1996, with US$10.4 million of that attributable to the group's profit that year.
The reason for the optimism is that Vietnam is experiencing a shortage of cement, needed for the country's infrastructure programme.
Brokerage DMT Securities forecasts Luks will register 43-per cent profit growth to $250.9 million in 1993 and 38 per cent to $345.3 million in 1994.
Currently, Luks has an historical price-earnings ratio of 6.25, the second lowest of all television manufacturers. However, owing to the huge expansion in China and Vietnam, the group had a debt-equity level of 1.03 in 1992.