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Shanghai Automotive doubles 4th-quarter net
Updated: 2005-02-05 15:38

Shanghai Automotive, which owns a fifth of General Motors' main car plant in China, reported a doubling of fourth-quarter earnings on Friday, but it missed expectations as China's credit curbs hammered demand.

Analysts had expected a bigger jump in quarterly income from an extremely low 2003 base.

Shanghai Automotive Co Ltd, an auto parts maker that is also the sole listed unit of GM's Chinese partner, posted a net profit of 171.09 million yuan (US$20.7 million) in 2004's last quarter, versus 71.8 million yuan a year ago.

For 2005, its profits are expected to slide 20 percent due to decelerating demand, rising steel costs and price discounts at its venture with GM, according to three analysts polled by Reuters on Friday.

The main plant in China's financial hub, which cranks out mainly Buicks, accounts for over 70 percent of the company's earnings. The venture, China's largest car maker, posted a 26 percent rise in unit car sales in 2004.

"A big earnings fall for 2005 is almost certain because of weakening domestic industry conditions," said Xu Xiang, a senior analyst at China Southern Securities.

"No company can completely escape slowing output and sales, or lower margins after price cuts."

Growth in car sales in the world's third-largest auto market slowed dramatically to just 15 percent in 2004 after a near-doubling in 2003 as Beijing tightened credit to a handful of industries, including autos.

Experts expect the market to grow just 10 to 15 percent in 2005 as Beijing keeps up the credit curbs, which are aimed at bringing about a soft landing of the world's seventh-largest economy.

Invest losses

Shanghai Auto also has set aside 401.9 million yuan in provisions to cover potential investment losses in China Southern Securities.

The country's fifth biggest brokerage, in which Shanghai Auto is one of the biggest shareholders, was seized by regulators in January 2004 due to potentially heavy losses and is under investigation on charges of mismanagement.

For all of 2004, Shanghai Auto's net profit climbed 30 percent to 1.98 billion yuan versus 1.52 billion yuan in 2003, when earnings surged 41.7 percent.

The 2004 performance fell short of a consensus of 2.195 billion yuan by three analysts polled by Reuters Estimates.

"Our country's auto industry trended downward in 2004. We saw growth slowing, prices of raw materials going up and product prices falling," the state-run firm said in an annual report.

Shanghai Auto's A shares dived 55 percent in 2004, vastly underperforming the market's 15 percent slide.

It now seems cheap compared with Asian peers, trading at about 8.6 times forecast earnings versus Toyota at 11.1 times earnings and Honda at 10.7, according to Reuters Research.


Turnover edged up just 9 percent to 7.49 billion yuan in 2004 from 6.89 billion yuan in 2003.

Signs point to a further deceleration in Chinese car sales in 2005 as Beijing maintains a tight grip on auto loans for fear of fomenting more sour debt in its fragile financial system.

That's bad news for global auto makers including Ford Motor Co, Nissan Motor Co Ltd and Toyota Motor Corp, which are investing over US$13 billion to triple annual production in China to more than 6 million cars by 2010.

"Gone are the days when auto makers could make colossal profits. Plus, the credit tightening has effectively curbed the large-scale expansion of auto makers," said Shi Zhonghua, an industry analyst at China Securities.

GM posted a 27 percent rise in unit vehicle sales in 2004, little more than half the pace it set in 2003.

Volkswagen AG , which counts China as its largest market outside Germany, posted a 6 percent drop in sales from its two Chinese ventures in 2004.

BMW AG reported this week that its sales -- including imports -- had fallen 16 percent in 2004.

To try and spur business, BMW last month cut prices by up to 14 percent on cars made with domestic partner Brilliance China Automotive Holdings Ltd. Others may follow.

Still, analysts foresee less drastic price cuts in 2005 after repeated rounds of discounting hammered margins last year.

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