Battery firm plans $1b investment to recharge
Shenzhen car, battery and components manufacturer BYD will spend at least $1 billion to boost sales this year in an effort to bounce back from a 49 per cent drop in net profit last year, according to its president Wang Chuanfu.
The Hong Kong-listed firm hopes to increase sales of its handset components such as casings and keypads to international mobile phone makers, whose success in the mainland last year ironically led to the sharp decline in BYD's battery business.
International companies such as Nokia and Motorola grabbed substantial market shares from mainland handset makers - which BYD supplied with lithium-ion batteries - causing a 40 per cent drop in the firm's sale of such batteries to 2.1 billion yuan last year. As a result, batteries accounted for 32.3 per cent of BYD's revenue last year, down from 54 per cent in 2004.
The drop in sales was responsible for most of BYD's 49 per cent decline in net profit to 529 million yuan and its stagnant 1.1 per cent growth in total revenue to 6.5 billion yuan last year, said Mr Wang.
'International handset companies introducing new designs and technology are putting pressure on mainland handphone manufacturers,' Mr Wang said.
'From the bottom end, black handsets [illegally made mainland mobile phones] are also grabbing market share from legitimate manufacturers.'
The domestic market share of mainland handset makers has plunged from about 60 per cent in 2003 to about 20 per cent, according to Mr Wang. Virtually all Chinese handsets used BYD's lithium-ion batteries, which were little used in international mobile phones.
In contrast, international mobile phone companies accounted for most of BYD's sales of handset components, which jumped 103 per cent to 1.9 billion yuan last year.
'There is a high chance that similarly strong growth in handset components will be repeated this year given BYD's new relations with Nokia,' said DBS Vickers analyst Joseph Ho Wai-kei.
BYD was recently chosen as a supplier of components such as casings and keypads for the Finnish giant's handsets globally, and its shipments of such components will start in May, noted Mr Ho.
Mr Wang said BYD's fledgling car business should turn from a loss last year to profit this year, and sales should grow to at least 70,000 cars this year from 16,000 sold for 629 million yuan last year.
With heavy capital expenditure on cars and handset components, BYD's high gearing would fall only slightly this year, said Mr Wang. 'Our gearing is rather high, so we won't give dividends for 2005.' The ratio rose to 78.39 per cent last year from 60.73 per cent in 2004.