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UPDATE 1-Toyota's China partner FAW Xiali Q2 back in black

(Adds details, quotes, analyst comments)

By Ben Blanchard

SHANGHAI, Aug 27 (Reuters) - Tianjin FAW Xiali Automobile Co Ltd , a partner of Japan's Toyota in China, said on Wednesday it bounded back into the black in the second quarter of 2003 as car sales rode a booming market higher.

FAW Xiali, which has a strategic partnership with Toyota Motor Corp, made a second quarter net profit of 296.81 million yuan ($35.86 million) versus a loss of 375.1 million yuan in the year-ago period, based on Reuters' calculations.

Analysts said the company, China's third-largest listed auto maker by market capitalisation, should remain profitable this year after dealing with a bad debt burden in 2002.

"The company has seen revenue soar in the first half, bolstered by booming sales of new models and strong demand in the private car market," said analyst Gu Qing at Haitong Securities.

"It will likely continue to turn a profit in the second half with robust growth in sales," she added.

Based in the grimy northern port city of Tianjin, FAW Xiali, which cranks out the venerable Xiali sedans seen all over Beijing, said car output rose 62.57 percent to 64,582 units in the first half, while sales leapt 46.45 percent to 55,888.

Turnover in the second quarter rose 17.3 percent to 1.3 billion yuan.

"We capitalised on favourable conditions in the domestic auto market to push sales and grow turnover," FAW Xiali said in a statement published on the Shenzhen stock exchange's Web site at www.cninfo.com.cn.

But the company warned of pricing pressure down the road.

"We now face fierce competition triggered by the development of the domestic auto market after China's entry into the World Trade Organisation, with new car products emerging and prices falling continuously," FAW Xiali said.

But long term, FAW Xiali is poised to benefit from its parent First Automotive Works' strategic alliance with Toyota to tap the country's booming auto market, which should see car sales break the two-million mark in 2003.

Toyota, the world's third-biggest automaker, is a relative latecomer to the rapidly growing market, where Volkswagen AG , General Motors Corp and Honda Motor Co Ltd have been making cars for years.

FAW became FAW Xiali's biggest shareholder earlier this year.

Under a wide-ranging deal between FAW and Toyota, which signed a pact to make 300,000 to 400,000 cars by 2010, FAW Xiali would form a crucial production base for the partners.

The company managed to turn around at least one of its three 50-50 joint ventures with Toyota, which all bled red ink last year after a once-off writeoff of debt.

In the first half, Xiali's car making venture with Toyota -- which makes the Vios and will start producing the Corolla in the spring of 2004 -- posted a profit of 414.77 million yuan.

The other two ventures involve the manufacture of car parts.

FAW Xiali posted first half earnings of 352.41 million yuan versus a loss of 406.51 million yuan a year ago. First half turnover rose 41.12 percent on year to 2.67 billion yuan.

Tianjin FAW's Shenzhen listed stock closed flat on Wednesday at 9.16 yuan. The shares have fallen 18.29 percent since the end of May when the company announced a major round of price cuts, underperforming the market which fell 9.2 percent. ($1=8.276 Yuan)