Legend Group records weak profit rise ( 2003-11-06 09:51) (China Daily HK Edition)
Top Chinese computer maker Legend Group disappointed investors yesterday with
a weak 1.9 per cent rise in net profit in the key back-to-school quarter as
competition squeezed margins.
The company vowed to step up spending on product development to defend its
dominant China position from foreign and domestic rivals including US giant Dell
Computer, renowned for its low-cost direct sales model. But it warned the
spending would dampen profits.
Reflecting the intensifying competition, Legend said gross margins for its
first half ended September 30 dropped to 14.88 per cent from 15.02 per cent a
year earlier, while net margins dropped to 4.65 per cent from 5.06 per cent.
"The results are on the disappointing side," said Deutsche Bank analyst Fung
Ee Lim. "The corporate side was a bit weak, but the main problem is the new
businesses that are loss-making."
Lim said investors may be especially concerned about Legend's consulting
services and cellphone arms, which the company has billed as future growth
engines but which continue to lose money.
Legend said net profit totalled HK$261.16 million (US$33.5 million) in its
second quarter, compared with HK$256.27 million (US$32.9 million) a year
earlier. Revenues grew 12.2 per cent. The results lagged the average forecast of
four analysts surveyed by Reuters for a profit of HK$288 million (US$36.9
million).
To bolster its position, Legend plans to step up research and development
(R&D) spending to about 3 per cent of revenue from less than 2 per cent at
present, said Chairman Liu Chuanzhi.
"If we don't want to be a mediocre company, this is the time to invest," he
told a news briefing. He said increased R&D spending was likely to dampen
profits in the short term.
Legend also said it was raising its interim dividend to 2 HK cents per share
from 1.8 HK cents last year.
China's PC market is expected to grow by about 15 per cent this year,
surpassing Japan for the first time to become the world's largest behind the
United States, according to research firm International Data Corp (IDC).
Legend said its desktop PC shipment sales growth of 16 per cent for the six
months through September was ahead of overall industry growth, but IDC said it
was in line with the market.
Within Legend's PC unit, second-quarter profits from consumer sales rose a
strong 73 per cent from a relatively low base last year, Deutsche Bank's Lim
said. But profits for PCs sold to businesses, which typically carry better
margins, rose a much weaker 2 per cent.
"Fiscal first-quarter results were affected by SARS, but we would have
expected a stronger number" in the latest quarter, Lim said. "But it didn't come
through, so that was a bit of a worry."
An estimated 12.9 million PCs will be shipped in China this year, compared
with 12.7 million in Japan and 51 million in the United States, said IDC analyst
Kitty Fok.
