China's Qingling Motors H1 dives on price cuts

HONG KONG, Aug 28 Charlie Zhu writing for Reuters reported that Chinese truck maker Qingling Motors posted a 65 percent fall in first-half net profit on Wednesday as fierce competition took its toll.

The company's stock plunged more than 18 percent to close at HK$0.91 on Wednesday, wiping out gains accumulated in the past two weeks.

Qingling said net profit dropped to 59.42 million yuan (US$7.2 million) from 172 million yuan in the year-ago period.

It blamed the decline on a drop in sales of multi-purpose vehicles (MPVs) and fierce competition that intensified with China's entry last year into the World Trade Organisation.

"Imports dealt a heavy blow to MPVs," Qingling Deputy General Manager Pan Yong told reporters. He said imports surged in the first half as China lowered tariffs.

The firm sold 15,482 vehicles in the first half versus 14,770 a year before. Sales of MPVs, which are priced at 180,000 yuan (US$21,740) and are Qingling's most profitable product, fell to 1,728 from 3,239.

Qingling, based in the southwestern city of Chongqing, is the mainland partner of Japan's loss-making Isuzu Motors. It is one of China's biggest light truck makers with about 20 percent market share.

"Qingling has not always been well focused on the market and people are worried about the products they have," said Joseph Lau, a director at Tai Fook Asset Management, which does not hold any Qingling stock.

Turnover fell to 1.48 billion yuan in the first half from 1.70 billion yuan. It proposed no interim dividend.

PRICE CUTS, FLAGGING SALES

Last year, Qingling for the first time in six years cut prices of its light trucks and pickups by eight to 10 percent in a bid to boost flagging sales. Early this year, it cut prices on some of its diesel-engine pickups by five to six percent.

But analysts said lower prices had failed to drive up demand in the face of intensifying competition.

"They are under pressure to cut prices further, definitely," said Grace Mak, an analyst at Merrill Lynch. She had expected first-half profit to fall about 30 percent to 121 million yuan.

But Qingling's Pan said the firm would not cut prices further because it believed its products are reasonably valued.

Its leading product, an Isuzu-brand light truck, costs 105,000 yuan, compared with a 70,000-yuan price tag on a rival vehicle sold by Jiangling Motors, in which U.S. auto firm Ford owns about 30 percent.

Qingling has been losing market share to Jiangling, which last Friday posted an 85 percent surge in interim profit as sales of its light trucks and minivans hit record highs.

Jiangling sold 24,968 light trucks, minivans, pickups and minibuses in the period, up 30 percent year-on-year.

On top of foreign rivals, Qingling also competes with, look-alike light trucks made by small Chinese automakers.

"At least six domestic automakers are producing light trucks which look very similar to ours and selling them at around 30,000 yuan," Pan said.

An analyst at a western investment bank said: "For light trucks, consumers in China don't give a damn whether you are Isuzu or not, as long as it moves."

The analyst, who declined to be identified, said Qingling's future lies in the heavy trucks that it launched last year. "The truck industry is switching to the larger-capacity (model). It is a very clear trend," he said.

Pan said Qingling was on track to meet its sales target of about 32,000 vehicles this year, up nine percent from the 30,279 it sold in 2001 and 41,100 in 2000. The 2002 target includes 20,000 light trucks, 3,600 MPVs and 800-1,000 heavy trucks.