Faced with declining revenue at home, Chinese TV makers resort to asset sales to shore up earnings
Konka Group and Hisense Electric among firms selling assets to boost bottom lines
The rise of Chinese television makers over the past four decades provides a parallel to the country’s economic reform and opening as a whole.
But while they have a 30 per cent share of the global market, these manufacturers are entering a phase of cutthroat competition at home, where increasing digitalisation has resulted in changed consumer demands.
So much so that Shenzhen-based Konka Group, once the mainland’s largest television manufacturer, was forced to sell assets to shore up earnings after a lacklustre performance by its core business.
According to a filing with the Shenzhen Stock Exchange on Friday, Konka pocketed a one-off gain of 5.15 billion yuan (US$821.4 million) in 2017 through the sale of property assets, which helped the company report full-year earnings of 5.057 billion yuan. Without its extraordinary gain, the company would have posted a net loss of 97 million yuan.
“It was, yet again, a vivid example of using property assets to shore up profitability,” said Zhou Ling, a fund manager at Shanghai Shiva Investment. “Since corporate fundamentals remain unchanged, the high earnings figures won’t be enough to convince investors.”
Konka posted a loss of 1.2 billion yuan in 2015 before it turned losses into a profit of 96 million yuan in 2016. It is not alone.
Hisense Electric, another leading Chinese television maker, said on Wednesday that its profit for 2017 had slumped by 46.5 per cent to 942 million yuan, its lowest since 2011. Excluding one-off gains, the company’s underlying profit was 707 million yuan, down 57.9 per cent from 2016.
Earlier, Sichuan Changhong Electric, which was the No 1 colour television maker on the mainland in 1990s, reported a 68 per cent profit drop for the first three quarters of 2017, earning 167 million yuan. It has yet to publish the full-year earnings for 2017.
Colour televisions were considered luxury items for Chinese households four decades ago, when the mainland leadership decided to integrate the country into the world economy. Ordinary families spent more than 1,000 yuan, or years of savings, to own a foreign-branded colour television in early 1980s.
Foreign joint venture television makers mushroomed, buoyed by mounting demand. Local bellwether companies such as Konka assimilated western technologies before launching their own premium products.
Zhu Dan, a deputy chairman at the Zhangjiang Platform Economy Research Institute, said China had already become a global powerhouse in the television industry, but was facing an overcapacity at home.
According to the consultancy All View Cloud, television sales in China declined by 12.9 per cent to 10.4 million units between January and September last year.
Since the 1990s, soaring production volumes have triggered several rounds of price wars in the domestic market. In the past few years, forays by technology companies into the smart television sector amid increasing consumer engagement with programmes through the internet have worsened business conditions for traditional television manufacturers.
“Chinese television makers edged out foreign rivals by lowering prices in the past decades because their large production volumes gave them advantages in pricing,” said Ding Haifeng, a consultant with Integrity Financial Consulting, which provides advisory services on corporate restructuring. “Property assets they invested in earlier are now relied upon to offset their declining main businesses.”
One-off gains have long been a last straw for unprofitable mainland-listed companies looking to avoid delisting.
Only 2 per cent of A-share companies reporting three consecutive years of losses have been expelled from domestic exchanges since Beijing established the stock market in 1990, compared with 5 per cent to 6 per cent in developed markets.
Most underachieving companies have resorted to asset restructurings to rake in extraordinary gains and shore up their profits, thereby avoiding delisting.