Fulbond shares climb 9.5pc on car-making plan

PUBLISHED : Tuesday, 08 February, 2011, 12:00am
UPDATED : Tuesday, 08 February, 2011, 12:00am

Shares of Fulbond Holdings jumped 9.5 per cent to 2.3 HK cents in heavy trading yesterday after the loss-making timber company announced plans to invest at least 3.1 billion yuan (HK$3.66 billion) to reinvent itself as a maker of electric vehicles.

More than 2.81 billion Fulbond shares were traded.

Fulbond said in a Hong Kong stock exchange announcement yesterday it signed an agreement to acquire Lithium Energy Group for HK$900 million on January 13.

Lithium Energy, a loss-making British Virgin Islands company, makes electric vehicles, batteries and components on the mainland and is 97 per cent owned by Lau Yung.

Fulbond said it intended to invest 2.5 billion yuan to enable Lithium Energy to attain an annual production capacity of 20,000 electric vehicles by an unspecified date. It also plans to invest a further 600 million yuan to expand Lithium Energy's sales in overseas markets.

'The company has a five-year plan to expand the business engaged [in] by Lithium Energy and its subsidiaries in three segments, namely battery, power motor and controlling equipment, and co-operation with strategic partners in manufacturing of automotive vehicles,' Fulbond said.

As part of its five-year plan, Fulbond plans to set up 10 production lines to attain an annual production capacity of more than 1 billion batteries, up from Lithium Energy's current annual production capacity of 20 million batteries.

It also plans to increase Lithium Energy's annual production capacity of motor sets to 20,000 from 1,000 currently.

By co-operating with partners, Fulbond intends to make more than 10,000 vehicles a year, up from Lithium Energy's current production capacity of 500 electric buses.

To finance the acquisition and expansion of Lithium Energy, Fulbond plans to place 8.82 billion new shares, which it said would raise net proceeds of HK$1.48 billion.

'Electric vehicle batteries are something that is very difficult for a small battery company to do,' JPMorgan analyst Charles Guo said.

'BYD (a Warren Buffett-backed carmaker), Japanese, US and Korean companies have invested in this space for a number of years, and those were big investments.

'The [research and development] is expensive in terms of time and capital.'

Fulbond has been losing money since 2005. In 2009, the company incurred a loss of US$54.1 million, and had current liabilities of US$59.5 million.

These conditions 'may cast significant doubt on the company's ability to continue as a going concern', said its auditor, Deloitte Touche Tohmatsu, in the 2009 annual report.

Output target

The number of electric vehicles Fulbond hopes Lithium Energy can produce in a year after it invests 2.5 billion yuan: 20,000