HL Asia

HL Asia: Weak set of results which were below estimates. Rev at $1.1b, -11.8% yoy, while net profit at $53.6m, -13% yoy. Gross margin at 22.2% vs 23.4% yoy. Sales rev of Grp declined caused by lower diesel engine sales (Yuchai) and lower sales of refrigerators and freezers by Grp’s white goods unit (Xinfei) due to a slowdown in the diesel engine and white goods industries. These were partly compensated by higher sales of Grp’s building materials unit (BMU). Sales of Grp’s industrial packaging unit (Rex) improved marginally. Demand for white goods in China sharply declined in 1Q12 due to downturn in the industry and overcapacity, while expiry of rural subsidy incentive program in many provinces slowed down demand. Meanwhile, diesel engine sales also declined due to PRC govt’s actions to contain inflation, while the sluggish construction industry also affected the demand for trucks. Going forward, grp note that outlook for Diesel engines and white good industry remains challenging, and has decided to exit the Green Packaging business to enhance shareholders’ value. Grp’s recent acquisition of Airwell Air-conditioning is part of a 5-year strategic plan to move into high-value manufacturing and diversify Grp’s manufacturing business to include provision of commercial heating, ventilation and air-con. Overall fundamentals still strong with grp in a net cash position of $277.5m.