Guangzhou Honda Sales Up In First Half

By HONG KONG, Sept 11 Charlie Zhu writing for Reuters reported that Denway Motors, the Chinese partner of Japan's second-largest automaker Honda Motor Co <7267.T>, is expected to report first-half net profit rose by 11-27 percent as buyers in one of the world's fastest growing car markets snapped up its Honda Accords and Odyssey minivans.

Denway was likely to post first-half net profit of HK$414-476 million (US$53-61 million) next Wednesday, according to five analysts polled by Reuters. (Please double click on [HKG132268] for the specific forecasts).

It posted net profit of HK$374.15 million in the first half of 2001.

Sales at its Guangzhou Honda factory in southern China grew by about 10 percent in the period year-on-year to 27,900 units, including 2,500 Odyssey minivans. The plant began producing Honda Accords in 1999 and started making minivans in April this year.

"We expect the company (Denway) has achieved improved margins because of its larger economy of scale and benefits from the yen weakness," said Lawrence Ang, an auto analyst at Deutsche Bank.

Weakness in the yen in the first half reduced the company's costs. Guangzhou Honda imports 40 percent of its car parts from Japan.

Alice Hui at DBS Vickers expected Guangzhou Honda's first-half operating margin to edge up to 15.9 percent, but analysts said profits would be capped by the end of a tax holiday last year for Guangzhou Honda as a Sino-foreign joint venture.

Guangzhou Honda is on track to achieve or even beat its full 2002 sales target of 59,000 vehicles, partly due to strong demand for the minivans, analysts said.

"We believe Odyssey will still be in short supply in the near future," Ang said.

PRICE CUTS SEEN IN 2003

Many of China's car producers lowered prices in the first half to meet growing competition from cheaper imports following China's entry into thee World Trade Organisation.

Guangzhou Honda did not cut its sticker prices in the first half, but analysts expect it to reduce prices by 10 percent next year after it launches a new series of Accord sedans.

More foreign automakers are setting up joint ventures in China to tap the potentially huge market. Japanese firms in particular have zeroed in on China this year, lured by its steady economic growth compared with poor prospects back home.

Last month, Japan's largest car maker, Toyota Motor Corp, announced plans to launch its first China-made car in October and to tie up with China's top auto firm, FAW, to build 300,000 to 400,000 cars by 2010.

It's hard to quantity the impact on Guangzhou Honda partly because it's not yet known what types of vehicles Toyota would make with FAW, but it is set to intensify competition.

"They must become rivals just like they are elsewhere," said Maurian Yau, an analyst at HSBC Securities.

But analysts said China's car market is potentially large enough to hold even more automakers. Guangzhou Honda commands about 20 percent of China's medium- to high-priced car market and six percent of the total market.

JP Morgan analyst Frank Li expected Guangzhou Honda's annual capacity to rise to 250,000 units by 2005 from 120,000 in 2003.

Analysts also expect a hefty tax rebate this year from the Guangzhou government because the factory's Accord sedans had met emission standards. They said the expectations already have been partly factored into the price of Denway shares.