Li Heng – Earnings Strengthened By Forex Gains

Li Heng targets to announce its 2Q09 results on 11 August. Production remained at full capacity in 2Q09; monthly output could reach 10,000 tonnes, similar to that in 1Q09. ASP for 2Q09 is likely to have been in the range of Rmb16,000- 17,000/tonne, similar to that in 1Q09.

As such, we expect 2Q09 sales to remain flat qoq, totalling Rmb480m. Gross margin was about 8% in April, 12% in May and nearly 15% in Jun. Overall we believe gross margin for 2Q09 could remain at 12%, similar to that in 1Q09.

Li Heng recorded a forex loss of Rmb21m in 1Q09 due to the depreciation of the Singapore dollar against the renminbi. In 2Q09, the trend reversed and the Singapore dollar appreciated from below 4.5Rmb/S$ on 31 March to over 4.7 Rmb/S$ on 30 June. The company has a cash balance of over S$50m for the moment, and could have recorded forex gains of up to Rmb13m in 2Q09. Hence, we expect Li Heng’s 2Q09 net profit to come in at around Rmb30- 40m.

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