bodyType

customContents

entityId

entityUuid

articlePageQuery

filter

article

articleBaseAdvertisingInfoArticle

articleListArticle

articleSeoArticle

hooksArticleAcknowledgementGateOverlayArticle

hooksTrackPageViewArticle

hooksContentInterestArticle

articleLinkingDataContent

hooksAmpRedirectArticle

articleSchemaContent

liveArticle

advertZone

sentiment

contentLock

topics

types

sections

paywallTypes

createdDate

publishedDate

sponsorType

urlAlias

moreOnThisArticles

commentCount

authorLocations

authors

corrections

displaySlideShow

multimediaEmbed

printHeadline

seriesContainer

articleSpeeches

socialHeadline

headline

images

flag

firstTopic

glossary

flattenTypeIds

image

relatedLinks

relatedNewsletters

__typename

sponsor

pdfFiles

seriesReverseOrder

series

disableOffPlatformContent

published

updatedDate

summary

subHeadline

body

keywords

readingTime

customTimezone

liveContents

Toh Han Shih

Dyeing machine maker to see lower profits this year because of mainland curbs

Fong's Industries, the world's largest producer of textile-dyeing machines, is expected to see a decline in net profit this year due to the mainland's economic-cooling measures, but the company predicts robust growth next year.

'Analysts forecast the second half will be a mirror of the first half [when net profit dropped],' executive director Bill Fong Kwok-chung said.

Kim Eng Securities projects the company's full-year profit will drop 16 per cent from last year to $233 million, but turnover will rise 11 per cent to $1.5 billion.

In the first half, Fong's net profit dropped 15.6 per cent to $118.58 million while turnover rose 14.5 per cent to $763.73 million.

'We believe Fong's is likely to deliver negative surprises in its second-half results,' Kim Eng said in a research note on October 29.

Fong's share price rose to $6.95 yesterday, from $5.45 at the start of a rebound on September 10.

Mr Fong predicted the company's net profit would rise next year and that revenue from the dyeing-machine business, which accounts for about 50 per cent of turnover, would expand by at least 15 per cent.

Most of Fong's sales growth next year would come from Hong Kong and elsewhere in Asia, excluding China, while sales to mainland factories, which accounted for 60 per cent of revenue, would be flat, he said.

India, which generated 30 per cent of Asian sales excluding China, recorded the strongest growth in the first half and Mr Fong expects that trend to continue.

'Thailand and Pakistan will also do well,' he said.

Mr Fong said the company would also book $250 million to $300 million of revenue from Scholl-Then, the German manufacturer of textile-dyeing machines it acquired for $54.8 million in August.

With the acquisition of Scholl-Then, Fong's sales were about 20 per cent higher than those of its biggest rival, Thies of Germany.

Asian textile-machinery makers were not a threat to Fong's because they targeted different markets, Mr Fong said.

Kim Eng forecast Fong's revenue would increase 17 per cent next year to $1.75 billion and net profit would increase 11 per cent to $258 million.

One cause for the profit drop in the first half was that mainland textile makers were afraid that the United States would impose 'safeguard quotas' on mainland textile products, Mr Fong said.

Under World Trade Organisation rules, the US and other WTO members can impose one-year safeguard quotas on mainland textile products that disrupt or threaten their domestic market. The safeguard mechanism is in force through 2008.

Mr Fong said that China's austerity measures, which began hitting the mainland's textile industry in the second quarter, were another drain on his company's profits.

'The austerity measures affected our China customers severely,' he said. 'China uses austerity measures as a blunt instrument. China held back all sectors of the textile industry, even if they were healthy.'

Not only was credit tightened, but licence approvals became tougher, Mr Fong said.

'We're now seeing signs of loosening of the austerity measures,' he added.

Mr Fong was optimistic about prospects for the textile industry, despite fears of China's domination after global quotas end today. Textile businesses could still thrive in some Asian countries, he said.

'For the next three years, it's not a zero-sum game for the Asian players. Several Asian countries are going to grow, but their growth rates may differ. Asia will take market share from places like Mexico.'

Mr Fong said that in a few years, Asian textile makers might not be as focused on the US and European markets. 'After three years, China and Asia's domestic demand will play more of a role for the growth of the textile industry in the region.'



Fong's expects robust growth from sales outside China