HONG KONG -- Chinese automobile manufacturer Brilliance China Automotive Holdings said on Thursday that most of its profits came from an unlisted subsidiary that sells parts to its flagship minivan unit in China.
The comments from Brilliance, which is listed in Hong Kong and New York, appeared to explain discrepancies in its profits that had stumped stock analysts.
Brilliance has been a favourite of many investors for its leading position in China and a tie-up with BMW to make luxury sedans there.
But the contribution from its minivan joint venture accounted for less than one fifth of Brilliance's 2002 profits of 651 million yuan ($78.6 million), leaving analysts wondering where the rest came from.
The venture is 51 percent-owned by Brilliance and 49 percent by Shanghai-listed Shenyang Jinbei Automotive.
"Obviously, figures released by the two listed companies do not match and the discrepancy is huge," said Francis Lam, a qualified accountant and lecturer at Hong Kong Polytechnic University's accountancy department. "Based on the information that's available, only the company can explain it."
Asked about the difference by telephone, Brilliance vice-president Elsie Chan told Reuters that 2002 net profit also included 113 million yuan from component manufacturing and other associated companies.
The rest, she said, was generated from profits at its wholly-owned parts sourcing unit Shenyang Xing Yuan Dong Automobile Component Co Ltd, the operation which she said sells parts to Brilliance's minivan unit.
Chan said that the minivan partner had received 84 million yuan in 2002 from the venture. That would leave about 87 million yuan for Brilliance.
In 2001, the difference between the minivan contribution and Brilliance's profit was relatively smaller. Brilliance made a net profit of 900 million yuan in 2001 and, according to the Shanghai partner, the minivan unit posted net profit of 495 million yuan.
The market perception had been that Brilliance generated most of its earnings by making and selling minivans in China.
Chan's explanation means the main contributor to profit is the parts sourcing business that serves the minivan venture.
Chan declined to disclose Xing Yuan Dong's 2002 profit. "We will not publish unaudited accounts of unlisted subsidiaries to the public," she said.
Asked if this explained the profits question, Deutsche Bank analyst Lawrence Ang said: "If this is the case, the profit quality (of the company) is not that good."
Chan said Brilliance separated the parts sourcing arm from the minivan venture in 1998 to lower costs at the minivan unit. "We just took out the purchasing department to be managed by another wholly owned unit and this benefits our shareholders."