THE soaring yen has clouded the annual result of China's Qingling Motors Co which reported an 8.4 per cent rise to 521.93 million yuan (about HK$478.6 million) in after-tax profit last year. The Chinese light-duty truck maker will face a tougher environment this year, with the expiry of an agreement with its Japanese supplier to fix the yen exchange rate on purchases of vehicle parts. Qingling's profit figures slightly surpassed the 500 million yuan forecast when the company was floated on the Hong Kong stock exchange last July. Its turnover jumped almost 51 per cent to three billion yuan. Earnings per share were 31 fen, with a proposed final dividend of 4.5 fen. According to sources, Qingling's before-tax profit included net interest income of 63 million yuan on bank deposits and subscription money for its H-share issue. Total interest income was 105 million yuan. Calculated on a before-tax basis, Qingling's profit margin was 23 per cent last year, down from 27 per cent the previous year. Chairman Wu Yun said the company's profit margin was squeezed because of the yuan's unification on January 1 last year. The company had to pay more in import tariffs and value-added tax, as the depreciation of the yuan effectively raised the tax. The company's profit growth also was limited by the sales volume, as a result of the austerity programme which squeezed credit. Qingling sold 24,065 vehicles last year, lower than its initial projection of 27,000, but Mr Wu expected 30,000 vehicles to be sold this year. He said Qingling was discussing with Isuzu, its major components supplier, avenues to explore more possibilities for cost reductions. Last year, Qingling's foreign exchange risk was capped as it agreed with Isuzu that from April 1 last year its buying of Isuzu components would be done at a rate of 105 yen for one US dollar. But the agreement was not renewed this year. 'The market for the company's light-duty trucks is promising, but its uncertainty is its exposure to yen,' said Daiwa Securities analyst Kent Chen. The management said Qingling made a gross profit of 27,000 yuan per vehicle last year. However, the margin will be down to 10,000-15,000 yuan when the dollar is about 90 yen. 'At the current level of about 80 yen, the company's profit margin will be further squeezed,' said Yamaichi International analyst Jiang Dan. Countering the worries, Mr Wu said the cost savings of using more mainland-sourced local components - about 15,000 yuan per vehicle - would more than offset the cost increase due to the rising yen, which was about 11,000 yuan per vehicle. But he admitted that the estimate was calculated on the basis that one US dollar was about 82 yen. Last year, imported raw materials accounted for 80 per cent of its total raw materials cost, down from 82 per cent in 1993. Excluding the tariffs, Mr Wu said mainland components would account for 60 per cent of raw materials this year. He expected the product localisation rate to reach 70 per cent in 1997. Secretary Wu Nianqing said Qingling had accounts receivables of 500 million yuan at the end of last year, which were due to the company's new policy of allowing customers to settle payment by confirmed bills. The measure was taken in the fourth quarter year, as 'we took into account the situation of our customers under the austerity programme,' said Mr Wu. But he said the receivables had been recovered in the first quarter. Last year, Qingling was given 50 million yuan in value-added tax rebates on its beginning inventory.