Set-top box spin-off to aid Skyworth fund needs

Skyworth Digital Holdings, the mainland's second-largest television maker, said the proposed spin-off of its set-top box unit for a separate listing would help the company meet financing needs to run the business.

Capital is needed because most of Skyworth's set-top boxes are sold through cable operators to new subscribers at negligible cost.

'A set-top box costs about 700 yuan, while cable operators charge their customers less than 100 yuan per month. As such, our credit period to the cable operators can be as long as nine to 12 months,' said Frederick Leung, executive director and chief financial officer.

That put pressure on Skyworth's working capital, as its trade and other receivables jumped to HK$1.73 billion at the end of September from HK$1.03 billion six months earlier.

Chairman Zhang Xuebin said that Skyworth would set up a new company for the set-top box division, and had already lined up three strategic investors. After the proposed initial public offering, Skyworth will still hold more than 50 per cent of the new company.

Skyworth started its set-top box business in 1997, and had been losing money until 2003. For the six months to September, the division recorded HK$80 million in operating profit.

Skyworth's half-year net profit rose 250 per cent to HK$98 million, helped by a one-off gain of HK$42 million from the disposal of a stake in the set-top box division. Sales rose 4 per cent to HK$5.84 billion.

'The results were driven by higher than expected TV sales,' wrote CIMB analyst Bertram Lai.

Unit sales of liquid crystal display sets doubled for the six months, and accounted for 13 per cent of shipment, up from 6 per cent a year ago.

'Skyworth's overseas TV shipments for October were down 20 per cent from last year to 148,000 units, as a result of a strategic downsizing of the overseas TV business to stem losses,' wrote Joseph Ho, an analyst at Daiwa Institute of Research.

Skyworth plans to close its small home appliance division, which posted an operating loss of HK$73 million for the period. However, it will keep its mobile phone division despite a HK$62 million loss.

Brighter picture

Skyworth Digital's net profit for the six months to September, in HK$: $98m