Robust demand sees Dongfeng Motor profit surge 74.6pc

PUBLISHED : Thursday, 30 August, 2007, 12:00am
UPDATED : Thursday, 30 August, 2007, 12:00am

Dongfeng Motor Group, the mainland's third-largest carmaker, yesterday said first-half net profit surged 74.59 per cent, fuelled by strong demand in the country.

Net income rose to 1.95 billion yuan for the six months to June from 1.11 million yuan a year earlier, according to a statement filed with the Hong Kong stock exchange.

Earnings per share were 22.57 fen, against 12.93 fen previously.

Profits included 367 million yuan from a one-time write-back of deferred taxes from previous years, the result of the unification of income taxes for domestic and foreign enterprises. Excluding that gain, net profit was 1.58 billion yuan, up 41.65 per cent from the year-ago period.

Turnover rose 23.6 per cent to 28.8 billion yuan.

The mainland's robust demand for passenger cars and commercial vehicles is driving earnings for carmakers. Car companies are hoping rapid growth in sales can compensate for low brand loyalty and price cuts due to intensifying competition.

The sales volume of passenger and commercial vehicles by Dongfeng grew 28.4 per cent and 28.6 per cent respectively in the first half, outperforming the 22.3 per cent and 25.9 per cent averages for the industry nationwide.

Dongfeng chairman Xu Ping said earlier that despite a brief price war in March, he believed further car price erosion would be moderate, since car prices have already been reduced to international levels.

Analysts remain positive about Dongfeng's full-year earnings because household incomes are improving and Dongfeng's commercial vehicle business is in a turnaround.

In the first half, the two joint ventures of Dongfeng with Nissan Motor and Peugeot Citroen launched models that sold well. The Livina and the new Picasso helped drive passenger vehicles sales up 26.9 per cent to 20.7 billion yuan from 16.3 billion yuan.

Dongfeng's passenger vehicle business, operated by ventures with Nissan Motor, Honda Motor and Peugeot Citroen, contributed 72 per cent of the company's total revenue.

However, the commercial vehicle business of Dongfeng is still recovering and has been losing market share to its rivals in the heavy truck market since 2002. Revenue from commercial vehicles grew 16.88 per cent to 7.63 billion yuan from 6.53 billion yuan a year earlier.

'We expect Dongfeng to turn its commercial vehicle business into profit in 2007 as margins improve on strong volume growth,' said a report by Goldman Sachs.

'As sales volumes continue to rise, we believe Dongfeng should be able to continue to cut product costs and improve the profitability of its commercial vehicle business.'

Shares of Dongfeng yesterday closed at HK$4.76, up 1.28 per cent. Its price is up 27.48 per cent this year, outperforming the 15.31 per cent increase in the Hang Seng Index.