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Eric Ng

Rivals squeeze margins, although sales rise at the multi-purpose vehicle maker

Sichuan-based  Qingling Motors yesterday posted a lower than expected 7.31 per cent rise in net profit as price-cutting by rivals eroded its competitiveness despite higher sales.

The manufacturer of light trucks and multi-purpose vehicles (MPVs) posted a net profit of 157.56 million yuan last year, up from 146.82 million yuan in 2002, but 18.87 per cent lower than the 194.21 million yuan consensus forecast of analysts polled by Thomson First Call.

First-half profit rose 15.01 per cent year on year but second-half profit increased just 2.08 per cent.

The profit rise was mainly attributed to a 58.56 per cent decline in finance costs to 41.51 million yuan.

The company, based in Chongqing, is China's eighth-largest light-truck maker with 5 per cent of the market. It also makes  MPVs using technology from Japanese partner Isuzu Motors.  About 60 per cent of its customers are institutions.

Profit from operations fell 16.37 per cent to 229.41 million yuan despite sales growing 10.98 per cent to 3.57 billion yuan.

UBS analyst Henry Wu  said in a research report that he expected Qingling's sales volume would have surged by more than 30 per cent in the second half, implying a big margin squeeze.

'Qingling's competitors' recent aggressive price cuts will likely add pressure on Qingling,' Mr Wu wrote.  'Given Qingling's low operating scale, its bottom line is sensitive to product price cuts.'

He said Qingling last cut prices in July 2001, resulting in a 49 per cent fall in earnings that year.

Mainland vehicle sales grew 34 per cent to 4.45 million units last year, but manufacturers' bottom lines have been under pressure due to the rising cost of raw materials such as steel and plastics.

Many are ramping up capacity to lower unit production costs and bolster their bargaining power with component suppliers.

According to a GK Goh  report, Qingling's share of the light trucks market slipped to 4.8 per cent last year from 5.3 per cent in 2002.

'We expect continuous pressure on Qingling as its competitors expand through price-cutting and the launch of new models,' GK Goh analyst Alice Chong  wrote. 'Jiangling, a close competitor, cut its prices by 5 to 7 per cent in early February.'

Qingling's products occupy the premium end of the segment, which makes them less price-competitive, according to Ms Chong.

Jiangling's light trucks have been selling for  about 63,500 yuan each,  or about 37 per cent cheaper than Qingling's.

GK Goh expects MPV sales to fall 5 per cent this year, after falling 50 per cent last year, given the lack of new models from Qingling.



Price cuts depress Qingling earnings