SHANGHAI -- Shanghai Automotive posted a 10.5 percent rise in second-quarter earnings Thursday, despite China's slowing car sales, aided by a solid showing from a venture with General Motors, in which it controls a fifth.
But analysts say the listed arm of China's top carmaker could post a net profit gain of more than half in 2004 if sedan sales pick up as expected toward the end of the year.
Shanghai Automotive Co. Ltd. outperformed rivals such as FAW Xiali Automobile Ltd., Toyota Motor Corp.'s main Chinese partner, which unveiled a 79 percent slump in quarterly earnings this week.
Growth in sedan sales in China has decelerated since April when Beijing slapped curbs on credit, afraid that overinvestment in pockets of the economy could generate more bad loans.
GM estimates that just 2 percent to 4 percent of car purchases in China are financed via loans now, compared with nearly 20 percent at the end of 2003.
Shanghai Auto is the largest domestically listed maker of car components.
An analyst with an international brokerage estimated that the GM venture would contribute more than 80 percent of an estimated $304.5 million net profit in 2004.
Shanghai Auto posted net profit of $87 million in the April to June period from $79 million a year ago, based on Reuters calculations from previous figures.
Turnover in the second quarter rose 15.5 percent to $260 million, it said in a statement.
"GM's sales have been strong, despite a slowdown in the overall market, and that has significantly helped Shanghai Auto, whose profits come mainly from their stake in the venture," said Capital International Holdings analyst Lin Wenjun.
"But GM suffered a glitch in July sales, and if that keeps happening there could be cause to worry," added Lin, who expects a 50 percent rise in 2004 earnings.
A GLOBAL FOCUS
GM's flagship venture in Shanghai continues to do well. It posted a 92.4 percent on-year leap in first-half sales to 141,319 vehicles, much of that cars, though in July they dropped 18.2 percent from June.
"The brand is strong, though, and products still quite popular, so I don't think that sales will be a problem in the second half," she added.
China, which saw car sales almost double to 2 million units in 2003, is increasingly a focus for global automakers escaping depressed or saturated home markets.
But slowing sales have helped prompt industrywide price cuts, which GM enacted in May, followed by leader Volkswagen AG the next month. They chopped prices by up to 11 percent.
Shanghai Auto's first-half earnings rose 49 percent to $173 million from $116 million a year earlier, it said in a statement on the stock exchange Web site www.sse.com.cn.
First-half revenue went up 18 percent to $506 million.
"After two years of strong growth, China's car sales embarked on a slowing trend in the second quarter," the company said. "That exacerbated already intense competition in the market."
"Car sales slowed, competition intensified, prices of raw material inputs rose, and components fell," it said. "So we focused our efforts in repaying debt and trimming inventories, and actively pursued sales to the international market."
The listed company also benefits through its ties with its parent, one of a triumvirate that dominates the domestic sector.
Its parent, Shanghai Automotive Industry Corp., plans to list as a group -- possibly overseas -- over the next few years as it gears up to become a global brand.