Suppliers of gear to mobile groups feel credit heat

Mainland telecommunications equipment suppliers are feeling the pinch as carriers extend payment periods by up to 150 days, putting pressure on their cash flows.

Antenna maker and listing candidate Xian Haitian Antenna Technologies said two of its major clients - China Mobile Communications Corp and China United Telecommunications Corp Group - had extended their credit period to 240 days, up from 90 days.

The mobile carriers accounted for more than 50 per cent of Xian Haitian's sales revenue last year. In 2002, Xian Haitian generated 19 per cent of its sales revenue from selling its products to China Mobile, while 36.5 per cent of its revenue came from China Unicom.

Although Xian Haitian did not expect to see bad debts from the move, it said the delayed payments would affect its cash flow.

Despite strong revenue growth, Xian Haitian's listing sponsor, Core Pacific Yamaichi, did not expect the firm to generate positive free cash flow until 2005. The brokerage forecast Xian Haitian would record a net cash outflow of about $45 million for the full year.

Xian Haitian saw revenue more than double last year to 164.52 million yuan (HK$154.1 million), while net profit rose 85 per cent to 36.4 million yuan. In the first five months of this year, it generated 8.5 million yuan in net profit on 79.26 million yuan in revenue.

China Mobile and China Unicom have been aggressively pushing equipment and content suppliers to extend their credit periods. Fierce competition between local and overseas suppliers to the mobile duopoly has left them with little choice but accept longer repayment periods.

Comba Telecom Systems Holdings, which sells repeaters and antennas to two mainland mobile carriers to clear blind spots on cell sites, saw its average debtor turnover for the first half reach 140 days, up from 102 days at the end of last year.

Account receivables rose to $329.9 million at the end of June, up 65.7 per cent from $199.07 million at the end of last year. This compared with a 38.7 per cent year-on-year increase in sales revenue to $344.17 million for the first six months of this year.

The firm generates more than 90 per cent of its turnover from selling products to China Mobile and China Unicom.

Due to the pile-up of account receivables, Comba Telecom is facing similar negative cash-flow issues to Xian Haitian.

Comba Telecom recorded $43.24 million of net cash outflow from operating activities in the first half of the year.