SARS Delays China's Denway Motors Launch Of "Fit"

HONG KONG May 29, 2003; Dow Jones reported that Denway Motors Ltd.'s 45%-owned sedan joint venture said Thursday it has delayed the launch of its new small-sized sedan by one or two months because of the outbreak of SARS.

The move will result in an extra lift in production of higher-margin Accord sedans this year. Analysts said the switch is "neutral to slightly positive."

The venture, Guangzhou Honda Automobile Co., aims at diversifying its line of models by introducing the "Fit" sedan later this year to tap China's fast growing low-end sedan market. Guangzhou Honda has also expanded capacity and plans to increase output 90% this year from 2002 levels.

A Guangzhou Honda spokesman told Dow Jones Newswires the severe acute respiratory syndrome epidemic has prevented Japanese technicians from visiting China to prepare for launching Fit, forcing a delay in when the new car will come to the market to late September, or even October, from an earlier planned start date of August.

Idle capacity resulting from the delay will be used mainly to produce more high-end Accord sedans as the two car models share the same assembly facility, he said. The new output plan hasn't yet been decided though, he added.

Guangzhou Honda, set up by Denway and Japan's Honda Motor Co. , is the earnings driver for the Hong Kong-listed automaker.

Following a discussion with Denway management, HSBC Securities analyst Maurien Yau said she has slashed her forecast for Fit sales this year by 19,000 to 8, 000.

On the other hand, she estimates conservatively that an additional 10,300 Accords will be sold, offsetting the impact on earnings from the delayed Fit launch.

At best, there could be a 13% potential upside to her 2003 profit forecast if Accord sales turn out to be stronger than expected, Yau said.

Demand for the Accord and the multipurpose passenger vehicle "Odyssey" remains strong. UBS Warburg (News - Websites) said in a research report Wednesday Guangzhou Honda's sales weren't affected by SARS in the January-April period, rising 57% on year to close to 27,000 units in all.