China Automobile Parts sees Europe as earnings growth driver

KUALA LUMPUR: China Automobile Parts Holdings Ltd (CAP) is hopeful that its entry into the European market via the collaboration with German-based automotive firm Protev Asia Ltd will contribute significantly to the group's earnings in the long-term.
"Perhaps this could attract the attention of other European investors to pursue more collaboration in that region," its managing director Li Guo Qing told a press conference in conjunction with the signing of a memorandum of understanding between CAP and Protev Asia.
He expects the collaboration with Protev Asia, which has a presence in 12 countries in Europe, to boost the group's earnings, with the positive impact more compelling should it could secure more partners there.
Li is optimistic that premium car makers in Europe will continue to gain traction and the car sales are expected to increase gradually, with Mercedez Benz, BMW and Scania being targeted customers there.
"Besides the existing Asian market, we would like to leverage on Protev Asia's distribution network in Europe to expand our presence," he added.
Both CAP and Protev Asia intend to form a 50:50 joint venture company moving forward, where CAP will be tasked with product research and development (R&D) and production activities, while Protev will handle operations and product distribution.
CAP is involved in the manufacture of chassis components used in automobiles for transporting goods. Its product portfolio includes wheel-hub bolts, wheel axles, steel pins, u-bolts and torque-rod bushings.
Li said profit margin for the European market would be higher than the Asian market , which is in the range of 20% to 30%.
According to Protev Asia president Herbert Tucakovic, Protev Asia is expected to get 30% to 40% of parts supply for trucks from CAP following the collaboration.
Commenting on CAP's outlook, Li expects the second half of the year should improve as average selling prices for its products are set to rebound slightly.
For the second quarter ended June 30, 2014, the firm reported a decrease of 13.52% in net profit to RM17.37 million against RM20.09 million in the previous corresponding period, mainly due to the drop in average selling prices by 10.3%.
When asked if there is a need to raise fresh capital, he said it will depend on the future expansion plan, but there is no such intention at the moment.
As at June 30, CAP has a net cash of RMB477million (RM244 million) at hand.
Last year, the group had aborted its private placement exercise which was supposed to raise RM21 million.
ends