Zoomlion (1157 HK) – Profit Warning. Significant portion of its customers is now beyond repair and inadequate provisions for its financial leases

http://blogs.barrons.com/asiastocks/2015/04/14/zoomlion-slumps-on-profit-warning-barclays-downs-to-sell/?mod=BOL_hp_blog_astw

Meanwhile, will Zoomlion be able to collect cash from its sales? Will we see write-downs? The Barclays analysts wrote: Overdue finance lease receivables increased 5ppt to 30% at end-2014. Management commented that the average payback period for its machinery is six years. As such, we believe the financials of a significant portion of its customers is now beyond repair and that Zoomlion’s provisions for its financial leases (3.8% in 2014, down from 4.0% in 2013) is inadequate.

15 April 15

(1157) Zoomlion Heavy Industry Science and Technology Company(H): Zoomlion Heavy Industry Science and Technology issued profit warning and expects to record a net loss attributable to the equity shareholders of RMB300 m to RMB390 m for the first three months of 2015 due to the continuous slowdown in the growth of fixed assets investment of the State, especially the slowdown in the growth of real estate investment, the demand in the construction machinery market continued to be weak, which represented a relatively substantial persistent impact on the overall sales revenue and net profit.

(1157) Zoomlion Heavy Industry Science and Technology Company(H): Zoomlion said the joint research group which was formed by five departments, including the SASAC and MIIT investigated the operation of Zoomlion recently. Zoomlion’s chairman Zhan Chunxin said that the company will strive to achieve a 15% growth or higher in annual revenue in 2015.

20 January 15  

(1157) Zoomlion Heavy Industry Science and Technology Company(H): Zoomlion Heavy Industry Science and Technology Co., Ltd issued profit warning and expects net profit attributable to the equity shareholders for the year of 2014 to drop 70-80% YoY due to the continuous slowdown in the growth of fixed-assets investment of the State, especially the slowdown in the growth of real estate investment, the demand in the construction machinery market was weak.

http://blogs.barrons.com/asiastocks/2015/04/14/zoomlion-slumps-on-profit-warning-barclays-downs-to-sell/?mod=BOL_hp_blog_astw

April 14, 2015, 9:56 P.M. ET

Zoomlion Slumps On Profit Warning; Barclays Downs To Sell

By Shuli Ren

Shares of Zoomlion (1157.Hong Kong) fell by over 5% this morning after the construction machinery manufacturer issued a profit warning.In a filing with the Hong Kong Stock Exchange, Zoomlion said its March quarter likely registered 300 to 390 million in net loss, versus 395.8 million operating profit a year ago. On an earnings per share basis, Zoomlion would report 0.04-0.05 yuan loss, versus 0.05 yuan profit a year ago.

Before today’s open, Zoomlion’s shares have rallied 16% this month, driven by capital inflows and a bull market in Hong Kong.

But Zoomlion’s share performance has become detached from fundamentals, warnedBarclays‘s Yang Song and Joel Ying, who downgraded this stock to sell. They have a price target of 6.22 Hong Kong dollars. Zoomlion was trading at HK$5.84 recently.

Sales are deteriorating:

March excavator sales in China declined 42.5% y/y, following a 59% decline in Jan/Feb. Of greater concern is the sharp decline in March utilization hours, which suggests even worse sales trends going forward.

[Competitor] Komatsu and HCM’s excavator utilization hours were just over 100 hours in March, c30% below March 2014 levels.

Meanwhile, will Zoomlion be able to collect cash from its sales? Will we see write-downs? The Barclays analysts wrote:

Overdue finance lease receivables increased 5ppt to 30% at end-2014. Management commented that the average payback period for its machinery is six years. As such, we believe the financials of a significant portion of its customers is now beyond repair and that Zoomlion’s provisions for its financial leases (3.8% in 2014, down from 4.0% in 2013) is inadequate.

Zoomlion was seen as a play on President Xi Jinping‘s “One Road, One Belt” built-by-China ambition. Barclays estimates that these overseas infrastructure projects can only add 2-3% investment growth, definitely not enough to justify the recent rally.

Zoomlion’s profit warning did not spill over to other infrastructure plays. China Rail Group(390.Hong Kong) rose 4.1% this morning. CSR Corp. (1766.Hong Kong) gained 3.2%, China CNR Corp. (6199.Hong Kong) advanced 2.8%.

30 September 14

(1157) Zoomlion Heavy Industry Science and Technology Company(H): Zoomlion Heavy Industry Science and Technology said National Association of Financial Market Institutional Investors has accepted its issue of up to RMB9 bn medium-term notes within a period of two years.

15 September 14

(1157) Zoomlion Heavy Industry Science and Technology Company(H): Zoomlion Heavy Industry Science and Technology proposed to invest in and establish a finance company named Zoomlion Heavy Industry Science and Technology Group Finance Co., Ltd. together with its wholly-owned subsidiary ZoomlionCifa (Hong Kong) Holdings Limited. Zoomlion and ZoomlionCifa will invest RMB1,125 m and RMB375 m in the finance company, which represent 75% and 25% of the total registered capital of the finance company.

18 September 14

(1157) Zoomlion Heavy Industry Science and Technology Company(H): Zoomlion Heavy Industry Science and Technology Co., Ltd agreed to acquire 60% equity interest in Chery Heavy Industry Co., Ltd. by way of participating in a public bid held by Anhui Changjiang Equity Exchange. The 60% interest is 1.8 bn shares in Chery Heavy Industry held by Wuhu Construction Investment Company Limited, Chery Holding Co., Ltd. and Wuhu Yuanda Venture Capital Company Limited as to 780 m shares, 900 m shares and 120 m shares, respectively. Zoomlion intends to participate in the bid to acquire such shares at the quoted price of RMB2.088 bn.

12 June 14

(1157) Zoomlion Heavy Industry Science and Technology Company(H): Zoomlion  proposed to commence the business of financial derivatives by investing a nominal principal amount of not exceeding RMB2bn

30 Dec 13

(1157) Zoomlion Heavy Industry Science and Technology Company(H): Zoomlion  acquired German dry mortar producer M-TEC but did not disclose the purchasing price.

29 May 13

(1157) Zoomlion Heavy Industry Science and Technology Company(H): Zoomlion said the company is auditing relevant data after recent media report that the company falsified account and revenue last year.

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