Bright World: Soft 4Q08; but far from inundation

Soft 4QFY08 performance. Bright World (BWPM) reported a set of 4QFY08 results that were below our expectations, with revenue down 12.5% YoY (- 21.8% QoQ) at RMB127.6m and net profit down 62.9% YoY (-46.9% QoQ) at RMB18.4m. The negative surprise came from slower-than-expected sales of its conventional stamping machines, which was further impacted by higher selling and distribution costs, administrative expenses and allowance for doubtful debts. However, thanks to an overall increase in sales orders from its high performance stamping machines and improved selling prices, BWPM still managed to eke out a 13.5% growth in FY08 sales to RMB642.6m, and a slower 8.6% decline in earnings to RMB131.9m. The full-year revenue was just 3.6% shy of our FY08 forecast, while the net income was 8.6% short of our figure. Despite that, we note that BWPM had fulfilled our view that it would meet the profit target pre-condition as stipulated in the voluntary cash offer by China Holdings Acquisition Corp (CHAC).

Product development, VAT reforms to mitigate slowdown. Going forward, BWPM remains optimistic about the long-term prospects of its businesses and the metal stamping machine industry in PRC. While the global economic downturn has inevitably affected the export-driven manufacturing industry in China, management is confident that the demand for its high performance stamping machines and its continual focus on product development to expand its product range and markets are likely to buffer the impact of the market slowdown. In addition, the group also believes that reforms to the Value-Added Tax (VAT) system effective from 1 January 2009 are likely to encourage purchases on capital equipment, and in turn lead to increased demand for its stamping machines.

Discontinue coverage on BWPM. We believe that capital equipment manufacturers including BWPM are likely to encounter further slowdown on the back of a sputtering global economy. Our last rating on the stock was a BUY, with a view to accept the offer. However, there are now some uncertainties on the offeror's part in terms of fulfilling the pre-conditions for the deal to go through. We are STOPPING COVERAGE on BWPM due to reallocation of resources, anticipated weak global demand and lack of regular daily trading liquidity in the stock.

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