THE acquisition of major state-owned factories has brightened the prospects for Shell Electric, allowing it to gain immediate access to the lucrative China market. The company has bought 12 state enterprises from Guangdong Huabao Corp, which should enable its earnings to grow quickly. Guangdong Huabao is a renowned state enterprise with well-established distribution channels throughout the country. Notwithstanding the property development venture - Shunde Huabao Real Estate Industrial Corp - the other 11 businesses involve the manufacture of air-conditioning equipment, electric lighting fixtures, aerosol cans, ceramics, household appliances, nylon fabrics, packaging materials and electronic consumer products, offering a synergy to Shell's existing manufacturing business. Shell Electric began making microwave ovens in the territory in 1983. In the past decade this division has expanded rapidly and is expected to overtake electric fans as the company's core business. In 1987, Shell set up a factory in Shunde, Guangdong province, as part of a broad expansion plan and it is now the largest maker of microwave ovens in China. With the growing affluence of mainland Chinese, sales are burgeoning. This favourable sales trend clearly indicates the product will replace fans as the group's best-selling item in 1994 and beyond. At present, China accounts for about 20 per cent of microwave oven sales. With marketing rights allowing it to sell 30 per cent of its production to the mainland and the potential to expand further, Shell has tremendous potential. However, the slowdown of the US and European markets means that sales of other electrical products will lead to a corresponding drop in operating revenues in financial year 1993. Nevertheless, the overall earnings picture of Shell's electrical and electronics division is satisfactory. The company intends to concentrate its property development projects in Guangdong, where it has a cordial relationship with the authorities. At present, Shell has a 20 per cent stake in Sky Central Plaza, 90 per cent equity interest in Skyview Plaza and a 60 per cent interest in SMC Building, all in Guangdong. The total attributable area from these amounts to about 1.53 million square feet and pre-sales of the properties will start this year. Management expects to see profit contributions start this year. The enlarged earnings base, backed by the core businesses - property, and microwaves and fans - is expected to bring Shell's 1994 profits to $309 million, representing a 137 per cent increase over last year's estimated earnings of $130 million, accordingto brokerage DBS Securities. On a prospective 1994 price-earnings ratio of 6.8 times, the stock is at a huge discount to the industrial counter average.