Fallout will result in fewer automakers each with a larger slice of the pie, says Zang Ligen. Photo by Sim Kih
AUTO SALES in China may have surpassed America for the first time in Jan 2009 but its auto players are tightening their belt in anticipation of a sector slowdown this year.
Lizhong Wheel had grown revenues 20% a year since 2002 but announced last month that growth in its sales of wheels worldwide had slowed to 1.2% over FY08.
It sold Rmb 916.6 million of wheels in FY08.
Domestic sales for the leading Chinese aluminum alloy wheel maker had contracted 8% yoy.
The good news: “Lizhong Wheel is still doing well in exports because it is grabbing market share from some foreign competitors who have ceased operations,” according to Shanghai-based UOB Kayhian analyst, Allen Jiao, in a report last month.
Asian locations outside China such as Japan and Korea showed the most promising growth. Revenue from this geographic segment grew some 65% over FY08 to reach Rmb 73.5 million.
Europe was the next best performing region, with segment revenues growing 36% yoy to Rmb 166 million.
Sales contracted in China (Lizhong's largest market) but was offset by growth in exports to Japan and Korea.
Affected by the worst financial crisis since the Great Depression, America’s vehicle sales in Jan fell 37% yoy to a 26-year low of 656,976 vehicles.
Its auto industry woes were spelt out in Lizhong Wheel’s exports to America – a 24% sales contraction in FY08.
China's vehicle market has grown dramatically in recent years, overtaking Japan in 2006 to become the world's second largest by annual sales.
However, the 735,000 new cars sold in China in Jan 2009 were down about 15% from the record of 860,000 set in Jan 2008, according to the China Association of Automobile Manufacturers (CAAM).
Last year, the Chinese market grew 6.7% to 9.38 million vehicles — the first time since 1999 that yoy growth is below 10%.
And CAAM has revised its 2009 projection of growth in China’s vehicle market to below 10%, down from 20% previously.
The wheel maker’s net profit attributable to shareholders fell 49% yoy to Rmb 53.4 million for FY08. Net operating cash flow grew fourfold to Rmb 111.3 million. Gross gearing was 1.6x.
”To boost sales, we will secure more customers as well as roll out a wider range of wheel designs,” said Lizhong Wheel’s executive chairman Zang Ligen in a recent interview with NextInsight.
70-80 new designs will be commercialized each year with immediate effect compared to 50-60 new designs in the past, added Mr Zang.
| Plant Location | Annual Capacity (million wheels) | |
| Baoding | 2.8 | |
| Qinhuangdao | 0.8 | |
| Inner Mongolia | 1 | |
| Tianjin | 2 | |
| Total | 6.6 |
The company's total capacity will be capped at 6.6 million wheels a year when its Inner Mongolia plant is completed.
To spur the slowing auto market, the Chinese government has been rolling out measures to boost vehicle sales. Some of these include:
1) Cutting sales tax on cars with engines less than 1.6 liters by half to 5% over 20 Jan – 31 Dec 2009.
2) Rmb 5-billion of subsidies to be disbursed over Mar-Dec 2009 for farmers who are replacing motor tricycles or outdated trucks with small, 1.3-liter-or-less vehicles.
3) Rmb 10 billion to promote the upgrade of automakers' technology and development alternative energy vehicles over the next 3 years.
4) Increasing subsidies for scrapping old vehicles to Rmb 1 billion for 2009.
The measures appear to be taking effect - the Chinese vehicle market rebounded in Feb 2009, growing 12% yoy.
And Lizhong Wheel stands to benefit from higher replacement demand, more widespread car ownership and use of transportation vehicles.
UOB Kayhian reiterated its buy call on Lizhong Wheel last month with a target price of 23 cents.
The stock last closed at 15 cents on thin trade.
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| Tue 12 Aug 2008 | LIZHONG WHEEL: 2Q08 top line up 20%, in line with industry |
| Wed 23 Jul 2008 | LIZHONG WHEEL on Money Mind |
| Fri 2 May 2008 | LIZHONG WHEEL'S 1Q08 net earnings up 42% to Rmb 35.2 m |
| Sat 1 Mar 2008 | LIZHONG WHEEL'S profit up 34%; UOB Kayhian's target price $1.07 |
