Sichuan Changhong Electric Appliance Co. issued a statement on
the scale of its potential losses Tuesday following pressure from
the Shanghai Stock Exchange.
Shares in the company were suspended from trade on Monday as the
stock exchange said Changhong had "failed to make important
information public" following widespread media reports on details
of its loss.
According to the statement, the company is preparing to cover
over US$310 million in debts from Apex Digital, its biggest
customer and distributor in the US.
Apex owed Changhong US$467.5 million as of December 25,?but
the US company is now in a big loss as its business has been
affected by the imposition of patent royalties and US anti-dumping
measures on Chinese TV sets. According to reports in the 21st
Century Business Herald on Monday, its president has been
detained in Shenzhen on charges of fraud.
Apex has been a big seller of low-price television sets, DVD
players and other home entertainment products at discount retailers
such as Wal-Mart. In 2002, Apex sold 3 million Changhong-made
television sets in the US within eight months.
Reportedly, Apex began to sell DVD players for US$179 in 1999,
compared to US$400 for Sony models. By the end of 2002, this had
reduced to US$49, causing 1.23 million to be sold in a single day
and helping Wal-Mart enjoy a record high turnover of US$1.2
billion.
Earlier this year, the US Department of Commerce imposed 25
percent tariffs on Chinese television sets after a ruling that they
were being sold below a reasonable market price. Apex has also been
accused of ignoring royalty payments for patented DVD
technology.
Some have estimated that Changhong could possibly recoup US$150
million from Apex's assets, leaving over US$310 million in
uncovered debt.
The manufacturer will also earmark 182.8 million yuan (US$22.1
million) for potential losses in bond trading entrusted to
scandal-hit China Southern Securities, the statement said.
"Due to these factors, the company forecasts a big loss in
2004," Changhong said. The specific scale of the loss and the
impact on the company's business performance will be released in
its 2004 annual report.
A loss this year will contrast with last year's net profit of
241.65 million yuan (US$29.19 million), but over the last twelve
months their business performance has suffered due to stiff
domestic competition.
In the first nine months of 2004, Changhong posted a 47 percent
slide in earnings to 82.79 million yuan (US$10 million) from the
same period a year ago. In the first half of the year, they
exported US$200 million in television sets, compared to US$600
million for all of last year, said Liu Haizhong, a Changhong
spokesperson.
Its Shanghai-listed yuan-denominated A shares, open to selected
foreign investors, had by Friday lost half their value to end at
4.93 yuan (60 US cents) from their 2004 peak in mid-February,
compared to a 25 percent fall on the broader market.
"China's TV makers are battling another difficult year due to
nationwide overcapacity and a persistent price war in the
industry," said Chen Yuanwang, an industry analyst from China
Securities.
But with restructuring and technological innovations, the TV
manufacturing industry is likely to regain rapid growth in late
2006, he expects.
(China Daily December 29, 2004)