Brilliance China Q2 Sales Improve

HONG KONG, June 28 Reuters reported that China's largest minibus maker Brilliance China said today that sales in the second quarter had improved. It also reported that there was no formal approval yet to proceed with a long-awaited joint venture with Germany's BMW AG.

The firm said sales for the second quarter ending in June were about 30 percent higher than in the first quarter, but it did not give actual figures or further details.

"Second quarter sales were very good and year on year are about the same, and much better than Q1," newly-appointed chairman Wu Xiaoan told reporters at the company's annual general meeting in Hong Kong.

Wu was named boss of the firm last week after the company stunned investors by replacing its high-profile chairman, chief executive officer and president Yang Rong, saying his goals and views were no longer in line with those of shareholders.

Analysts said the sales improvement in the second quarter was likely due to special promotions the company was offering in a bid to offset fierce competition in the mainland auto market.

Brilliance also slashed prices of its minibuses by about 10 percent early this year, which might have resulted in stronger sales in the spring, analysts said.

Brokerage DBS Vickers Securities had estimated the company's first quarter minibus sales fell 28 percent on year to 11,000 vehicles because of the "weak market and intensified competition".

"There was a nice rebound in April and May, but for January to May, sales could still be flat or register a single digit drop (year-on-year)," said Alice Hui, analyst at DBS Vickers.

BMW MARRIAGE STILL ON

To boost earnings, Brilliance has been doggedly chasing the automobile market, with its eye set on the higher-margin luxury sector, which it hopes to tap with its proposed joint venture with BMW.

The companies submitted applications for the project more than a year ago.

On Friday, both joint venture partners said they had still not received a formal nod from the Chinese government, despite a report on the official People's Daily Web site last week that said BMW had gotten a preliminary approval.

"We haven't received formal approval...but we are very optimistic about it," said vice-chairman Hong Xing, who oversees the proposed venture, echoing a spokesman from BMW.

BMW told Reuters it was awaiting written approval for a "project proposal". After which, it would have to submit a feasibility study that would need further approval.

Brilliance shares have tumbled more than 19 percent in the last three months on investor concerns over the project's delay, price wars in China's increasing competitive auto market and media reports about government probes into former chairman Yang.

The stock closed unchanged at HK$1.06 on Friday, but is still down more than 26 percent in the last month.

In the meantime, Brilliance has unveiled its Zhonghua sedan, which will be launched in August. Brilliance said there has been strong interest for the new models which would be sold at between 150,000 (US$18,120) and 200,000 yuan each.

Still, analysts expect that high production costs could squeeze the company's 2002 earnings.

"For the whole year, their earnings performance will continue to suffer from high production costs...we don't expect too much in terms of profit performance but in terms of valuation, it's really cheap," said Helen Wang, analyst at SG Securities.

Brilliance stock was trading at a forecast price-to-earnings ratio of about five times on Friday. Its peer, Chinese truck maker Qingling Motors (HKSE:1122.HK - News), was trading at about nine times forecast 2002 earnings.

TRANSPARENCY QUESTIONED

At the annual general meeting on Friday, reporters far outnumbered shareholders and the media grilled the new chairman, vice-chairman and chief executive officer on the transparency of the firm.

Wu refused to specify why Yang had been replaced but said there were no changes in the firm's shareholding structure.

Yang, who remains a director of the firm, did not attend Friday's meeting.

Prior to his replacement, Brilliance China had repeatedly denied reports that he was under investigation, a point the firm reiterated on Friday.

Brilliance's majority shareholder is the Chinese Financial Educational Development Foundation, which Wu said was a "non-government and non-profit" organisation.

Yang, a former central bank official, was a founding member of the foundation.