Zhongwang expects 70pc profit rise

PUBLISHED : Thursday, 25 February, 2010, 12:00am
UPDATED : Thursday, 25 February, 2010, 12:00am


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China Zhongwang Holdings' 2009 net profit is expected to rise more than 70 per cent, the mainland aluminium producer said yesterday.

The Hong Kong-listed firm's share price rose 5 per cent to HK$6.32 yesterday but remains below its IPO price of HK$7. China Zhongwang made the announcement after the market closed yesterday.

The company's bullish outlook is in line with analysts' forecasts. A Bloomberg consensus of five analysts forecast that Zhongwang's net profit in 2009 would rise 74.2 per cent to 3.33 billion yuan (HK$3.8 billion). JP Morgan forecast the figure would jump 84.3 per cent to 3.52 billion yuan and turnover would rise 7.4 per cent to 12.1 billion yuan.

'The expected profit growth is mainly attributable to the continuing increase in demand for aluminium extrusion products in the transport, machinery and equipment and electricity construction sectors. This has resulted in increased sales and increased average processing fees charged on customers,' said founding chairman Liu Zhongtian.

In 2008, railways accounted for 43 per cent of the company's sales of aluminium products, while machinery accounted for 12 per cent and construction 31 per cent, according to company data.

Zhongwang's profit margin was boosted by a new plant and growth in exports of high-end industrial aluminium extrusion products, Liu said.

Zhongwang's share price jumped 11 per cent on February 10 after it announced that it had signed a preliminary agreement to acquire another mainland aluminium producer, Qinghai Guoxin Aluminium Industry, for 1.2 billion yuan.

On February 9, the firm's stock price plunged 27.3 per cent after Zhongwang announced that Ernst & Young, which was hired to review the company's figures, had reported facing 'external limitations in its verification procedures'.

But on January 5, Zhongwang had said Ernst and Young found no material deficiencies in the customer data in its IPO prospectus. Zhongwang raised HK$9.8 billion from its listing in Hong Kong in May last year.

Ernst & Young was asked to review the data and the company's tax payments after the mainland's The Economic Observer alleged last September that the top 10 customers Zhongwang named in the IPO document did not buy from the company in 2008. The Economic Observer later retracted the article and apologised to Zhongwang.

JP Morgan analyst Peng Chen advised taking a 'cautious stance' on Zhongwang, citing potential margin erosion risks in the next few years. The mainland's fixed-asset investment growth could be adversely affected by a potential tightening in the second quarter of this year, he wrote.