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Eric Ng

Agricultural equipment maker First Tractor plans to swap assets with its parent YTO Group Corp to pass off some loss-making operations, says executive director Liu Wenying.
The Henan-based company is pinning hopes on the restructuring to ward off a squeeze in  margins  because of rising raw material costs, intense competition and inventory devaluation.
'After the absorption of our parent into China National Machinery Industry Corp [earlier this year], some business overlap will be consolidated,' Mr Liu said.
'We expect to transfer some of our loss-making assets such as the making of construction loaders to our parent.'
The parent also was  considering injecting some assets into First Tractor, he  said, without giving details.
First Tractor last week posted  149.5 per cent growth in last year's net profit to 181.76 million yuan (HK$202.5 million).  But stripping out 109.55 million yuan of gains on disposal of equity investments, net profit would have been 72.21 million yuan,  little changed from 2006, despite  11 per cent growth in turnover.
Operating profit of the agricultural machinery division fell 23.58 per cent to 113.11 million yuan, while gross margin edged up only 0.57 percentage point to 10 per cent on more sales of products with higher profit margins.
Financial controller Dong Jianhong said the profit decline was due to an increase of 36.88 million yuan in research and development expenses and a rise of 12.5 million yuan in management consultancy fees.
However, the company's construction machinery business posted an operating loss of 69.65 million yuan, compared  with a loss of 72.64 million yuan in 2006, even as gross margin rose 0.73 percentage point to 8.34 per cent.
This  loss arose from the operation  booking inventory and accounts receivable write-downs, which Mr Liu blamed on 'historical management problems'.
Meanwhile, he said the company still had  8 million Bank of Communications A shares after selling 17 million shares last year. It also has 2.28 million A shares of Daye Special Steel.
'We have no imminent plan to sell more shares,' he said. 'It all depends on our cash-flow situation.'
First Tractor plans to spend 420 million yuan to bolster its production capacity of  for horsepower tractors and related diesel engines.
It also aims to raise the proportion of export sales to 30 per cent from 8 per cent last year, according to general manager Yan Linjiao. Exports soared 72 per cent year on year in the first quarter to US$26.08 million.
While raw material costs, which account for 70 per cent of total production costs, had risen 12 per cent in the first quarter, Mr Yan said the industry had raised product prices by an average of 6.5 per cent.
First Tractor aims to maintain this year's gross margin at last year's level.
Expansion mode
The company plans to raise  its tractor and diesel engine output
First Tractor aims to increase export sales from 8 per cent last year to: 30%



First Tractor to  inject loss-making   assets into parent YTO Group