HONG KONG - Denway Motors Ltd., the China partner of Honda Motor Co., on Tuesday posted a 51 percent rise in 2002 earnings as increasingly wealthy Chinese snapped up its Accord sedans and Odyssey minivans.
Investors are, however, bracing for intensifying competition in a China market which on Monday saw Volkswagen's Shanghai joint venture cut the price of its Passat, an Accord competitor, by an average of 10 percent.
Others have been investing billions of dollars into China, which rivals South Korea as Asia's second-largest sedan market after growing 56 percent in 2002 to pass the million-car mark.
Denway, which owns 47.5 percent of the Guangzhou Honda joint venture with Japan's No. 2 car maker, posted net income for 2002 of HK$1.09 billion (US$139.7 million).
The result slightly beat market expectations for profit of HK$1.06 billion, according to the average forecast of 20 analysts surveyed by Multex Global Estimates.
JPMorgan analyst Frank Li maintained his "overweight" rating on Denway after the result, noting that sedan sales in China rose 127 percent in the first two months of the year to 241,554 units.
"The China sedan sector is very strong," he said. "I think Denway is a very good proxy to play this game."
Further financial details were not immediately available.
Guangzhou Honda plans to roll out a cheaper car later this year to compete with models such as General Motors' Buick Sail, which sells for roughly 100,000 yuan (US$12,000). The Accord costs about 260,000 yuan.
Guangzhou Honda has said it expects to sell 110,000 vehicles this year, almost double the 59,000 it sold in 2002.
Investor euphoria towards China's car sector has cooled somewhat as prices come down and competition heats up with more foreign giants investing in new plants and tie-ups.
UBS Warburg said Shanghai VW's Passat price cut this week was a response to Denway's Honda Accord price cut earlier this year.
Henry Wu, an analyst at UBS Warburg, said he did not expect further price cuts by Denway or its rivals anytime soon.
"The current demand is so strong," he said on Tuesday.
An easing of import tariffs following China's accession to the World Trade Organization in late 2001also is pushing prices lower across the market.
Deutsche Bank expects car sales in China to grow by 20 percent to 30 percent a year over the next 10 years.