HL Asia

HL Asia: 2Q11 results underperformed already low expectations.
Core net profit came in at $19.1m (-41% yoy), at 18% of FY11 consensus, due to weak performance at its two main units, Xinfei (fridge maker) and Yuchai (engine maker).

The shortfall stemmed from a weaker-than-expected Xinfei performance which barely broke even. Even though 2Q is warmer and seasonally its strongest quarter, Xinfei was unable to engineer a major turnaround from two quarters of losses. Unit sales and ASP increases severely lagged behind peers, with industry figures now ranking Xinfei No. 7 by sales in China, down from No. 4 in Jun 10. Margin compression was aggravated by poor control of raw-material costs. This suggests Xinfei could see a loss for the full yr.
Yuchai’s profit fell 14% yoy despite 5% unit sales growth, as margins fell on the back of a shift in the product mix to lower-end engines and higher raw-material costs. Plagued by industry destocking, weak commercial vehicle sales and higher raw-material prices, sales growth could remain moderate.

CIMB keeps at Underperform, lowers TP to $1.78 from $2.74. Says while share price has pulled back to near Sep ’09 levels, the house expects more downside from weaker than expected earnings from Xinfei.
Credit Suisse downgrades to Neutral from outperform, cuts TP to $2.40 from $3.45.