HONG KONG -- The Chinese car making venture between Denway Motors Ltd. and Honda Motor Co. increased pre-tax profit 94 percent in the first five months of this year and said sales growth was strong despite fears of a slowdown.
The figures gave comfort to investors worried that heavy investment by foreign car makers in the world's fastest growing auto market was creating a margin-slicing glut.
Guangzhou Honda Automotive Co. Ltd., which contributes most of Hong Kong-listed Denway's profit, also said it will raise its 2004 sales and production target by 5.8 percent to 211,500 units.
"In May, although the overall growth in China's sedan market slowed, Guangzhou Honda's sales and output growth are relatively high," Zeng Qinghong, deputy general manager of Guangzhou Honda, said in a speech prepared for the international car show this week in Beijing.
Guangzhou Honda, which is 47.5 percent held by Denway and 50 percent owned by Honda, sold 13,886 vehicles last month, up 43.9 percent from May 2003.
Its profit before taxes, including value-added, consumption and income taxes, rose 94 percent to 3.78 billion yuan ($457 million) in the first five months of 2004.
It sold a total of 58,864 Accord sedans, Fit Saloons and multi-purpose Odyssey minivans for the first five months, up 60.2 percent from the same period last year. This equates to a pre-tax profit per car of $7,764.
The company would boost output by adding overtime shifts to satisfy customer demand, Zeng said in the speech posted on the joint venture's Web site www.guangzhouhonda.com.cn.
"These sales numbers are very strong," said Christopher Lee at S&P Asian Equity Research. "It tells me things are still going very well for them. They are gaining market share."
Shares of Denway ended up 1.57 percent at HK$3.225 on Wednesday after opening lower. The counter and other Hong Kong-listed Chinese car makers saw heavy sell-offs on Tuesday on fears of oversupply and tightening of car finance in China.
Reports in Hong Kong said total car sales in China had fallen 20 percent in May from April, but industry sources have not confirmed the figure.
"I thought the selling yesterday and the day before was indiscriminate (and) across the board. The market doesn't seem to distinguish good companies and bad companies," Lee said.
Foreign auto giants led by General Motors and Ford Motor Co. this week announced massive capacity expansions in China, adding to worries of a looming glut.
Merrill Lynch said "potentially more negative news" on capacity expansion plans in China could emerge this week during the Beijing auto show.
"The default rate on auto financing is speculated in the market as being alarmingly high and local banks might tighten up," Merrill said in a research report on Wednesday.
It expects further downward pressure on both Denway and Brilliance shares before market sentiment turns "less negative" and car sales pick up in the third quarter.
"We expect to hear more about new car models and price reductions that favour demand in the near term," Merrill added.
Denway launched its 1.5-liter Fit model this week in Beijing, priced at between 109,800 yuan ($13,260) and 119,800 yuan each.