Earnings warning knocks TCL

PUBLISHED : Wednesday, 12 July, 2006, 12:00am
UPDATED : Wednesday, 12 July, 2006, 12:00am

Mainland manufacturer may post substantial first-half loss after failing to cope with high demand in Europe for flat TVs

Shares of TCL Multimedia Technology Holdings yesterday fell to a near five-year low after warning it could post a substantial first-half loss because of 'much worse than expected' earnings at its European operation.

The mainland television maker's stock slumped 8.86 per cent or seven cents to settle at 72 cents, its lowest closing since October 5, 2001.

The shares have lost 35.7 per cent this year.

Analysts have warned that the company's loss from its European operation could widen this year. They remained pessimistic on TCL's earnings despite its plan to sell its computer division for $337 million and focus on television manufacturing.

TCL Multimedia last year bought a 33 per cent stake in TTE, a European-American television manufacturing joint venture, held by France's Thomson Group.

'We still wait for the company to turn the acquired European television business around under the Thomson brand,' a Kim Eng Securities report said yesterday.

'Only flat growth was recorded in China's television segment due to keen competition.'

TCL Multimedia reported a $139 million net loss for the first quarter this year, compared with a $48 million net loss a year ago. That figure did not include the acquisition of the loss-making French television giant Thomson in 2004.

The European and North American markets provided 46 per cent of the company's first-quarter revenue of $8.09 billion and China contributed 38 per cent.

Full-year net loss last year reached $598.89 million, compared with a net profit of $308.98 million a year earlier.

In a statement to the Hong Kong stock exchange yesterday, TCL Multimedia said its European operation faced 'rapid development of flat-panel display and the market pressure to replace cathode-ray tube television sets went beyond the company's expectations'.

'The company is currently exploring measures to drastically reorganise its Europe operation to minimise losses,' the firm said.

TCL Multimedia managing director Vincent Yan Yong said the business had fallen short of its targets for the first quarter and blamed the company's inability to meet surging demand for liquid-crystal display flat-panel television sets in Europe.

With total debt of $2 billion and a high gearing of 70 per cent, the company this year would need to refinance its shorter-term debt mainly through the equity market, Mr Yan said.

Lisa Li Yuan, an analyst at China International Capital Corp, said in a report last month that TCL would significantly reduce its market presence in Europe, a move that would incur a 'huge reorganisation expense'.

'Consolidation of the European television business will have a larger than expected impact on TCL Multimedia's full-year earnings [this year] ... the European television business may make a larger loss [this year than last year],' Ms Li said.