Credit freeze hits Kunming

Kunming Machine Tool Recommendation: Sell Brokerage: Smith New Court CHINA'S austerity measures crippled Kunming Machine Tool's performance last year. Despite the mainland's record 28 per cent fixed-asset investment growth, Kunming's policy of not extending credit to its customers translated into a 61 per cent fall in turnover and a 64 per cent drop in net profits.

Given the current outlook of continued tight credit and the Government's objective of decelerating fixed-asset investment, a turnaround is not expected in the foreseeable future.

Management has also admitted for the first time that competition from premium-priced Japanese and German computer-controlled machine tools and machine centres has intensified, even in China's highly protected environment of 15 to 50 per cent tariffs.

This does not bode well for the long term, when tariffs will be reduced as part of China's bid to join the World Trade Organisation.

Shun Tak Holdings Recommendation: Hold Brokerage: Sassoon Securities EARNINGS from Shun Tak's jetfoil business will remain stable, but will decline as a proportion of total group profit, from 56 per cent in 1994 to 33 per cent in 1997. Nevertheless, the Hong Kong to Macau passenger transport business is poised to benefit from the increased prosperity promised by the new Macau airport.

Delivery of three new craft in 1995 will allow the group to enhance its market share, but higher depreciation costs are expected partially to offset the benefits. Because of the difficult operating environment of its hotel and restaurant businesses in Macau, the combined contribution of Shun Tak's leisure interests will be unexciting.

Lam Soon Food Recommendation: Buy Brokerage: Smith New Court RESULTS for 1994 were slightly above the brokerage's expectations. The $472.5 million net profit includes a $420 million exceptional profit mainly from the sale of its Cheung Sha Wan headquarters and a 22 per cent interest in the Taiwanese can manufacturer LS Ball.

Underlying profits for core operations grew 54 per cent to $52 million. All Lam Soon Food divisions should report healthy earnings growth in 1995.

Hutchison Whampoa Recommendation: Buy Brokerage: Sassoon Securities THE earnings outlook in the short to medium term is mixed due to the expected reduction in investment income. Strong growth is likely to come from property investments and container operations. These will help propel the group's forecast 14.9 per cent earnings growth this year.

Forecast net rental income growth of 26.2 per cent will be boosted by the first-time contribution from Harbour Front, while year-on-year growth of 32.1 per cent in container operations will add to the continued solid growth of Hong Kong's container traffic.

Guangnan Holdings Recommendation: Buy Brokerage: Sassoon Securities GUANGNAN'S 1994 results exceeded expectations. The company managed a 63 per cent increase in turnover without sacrificing profit margins. The company also booked a $10 million exceptional profit from the disposal of unlisted investments and initial public offering interest income, further shoring up the bottom line.

The brokerage has slightly upgraded its 1995 forecast to $91.2 million, anticipating the trading business will continue its excellent performance.