Weak market hits Haier earnings

Qingdao Haier, long a darling of investors and often held up as a symbol of management success, yesterday reported a 45 per cent slump in first-half profit in a deteriorating white-goods market.

Net profit fell to 219.18 million yuan (about HK$205.43 million) from 399.56 million yuan. Earnings per share fell to 27.5 fen from 50.1 fen.

The profit fall far exceeded the 3.7 per cent drop in revenue to 6.25 billion yuan.

The listed arm of the leading home-appliance manufacturer has reached into new fields such as computers and mobile phones and new markets like the United States and said it was hammered by competition in its traditional product lines.

It was the first fall in profits for the company since it listed its shares in November 1993.

'The already vicious competition grew worse day by day in the first half,' the company said.

In the face of fierce domestic competition, Haier shifted its focus to the international market by shipping refrigerators and air conditioners overseas.

It said it had been forced to export more air conditioners because China's peak season for sales arrived late this year.

'Prices on our export products were low and exports took up a much greater proportion, so our total profits dropped even though our export profit margin did not,' Reuters quoted Haier as saying in its earnings statement.

The firm had relied heavily on window-mounted air conditioners for overseas sales but did not give a reason or provide details of why export prices had fallen.

Heavier finance charges for loans borrowed for new fridge and air conditioner projects in the northern city of Dalian had also weighed on profits, according to the Reuters report.

Haier vowed to cut costs and look to new products in the second half but was short on details.

The news triggered heavy selling of the company's A shares on the Shanghai market. The stock was the day's worst performer as it slumped 5.34 per cent to 12.40 yuan.

Analysts said the parent company had diversified into new areas but the listed firm was still mainly dependent on air conditioners, which accounted for 60 per cent of its business, as well as refrigerators.

'The market for appliances is really weak,' Xiangcai Securities research analyst Xia Yung said.

He said exports of air conditioners were up sharply but they were of the low margin window-type.

'Profits on that model are very thin,' he said.

Analysts said the profit slump also reflected higher costs for advertising and sales promotions as well as the booking of some costs from the purchase of assets from the parent company.

Haier has been buffeted by rumours of financial problems and has denied them publicly. Analysts were at least relieved that no further worsening of financial health was announced.