China Automobile Parts unfazed by yuan devaluation

KUALA LUMPUR: China Automobile Parts Holdings Ltd (CAP), whose products mainly cater to the Chinese market, does not foresee a significant impact from the recent devaluation of the yuan (also known as renminbi), said managing director Li Guo Qing.

While the currency depreciation is generally seen to benefit exporters, he said this may not have a positive impact on the company as some transactions are denominated in yuan.

“We think that the currency fluctuation will not pose a greater impact to us and we also don’t need any currency hedging,” he told SunBiz after the company’s special general meeting yesterday.

At present, over 60% of CAP’s products are for the domestic market.

Its materials are also largely sourced from China, thus limiting exposure to currency fluctuation risk.

“With the drop in material prices globally, we’re actually getting the benefit,” he said.

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.

For the first quarter ended March 31, 2015, CAP reported a 43.88% decline in net profit to RM11.52 million against RM20.52 million in the previous corresponding period, mainly due to lower sales volume and average selling price.

Li expects the moderate growth momentum will continue in the second half of the year.

“We cannot be too optimistic as the global business landscape is not that good. The industry we’re in already is considered well performing,” he said.

He believes demand for auto parts will continue to grow despite a drop in auto sales in China, as there is huge potential in the used car market.

“We not only serve new cars, but also used cars, which still need the replacement of auto parts as long as these used cars are on the road,” he stressed.

However, Li expressed concern over a potential slower replenishment of auto parts if there are prolonged uncertainties in the global economy.

“We’re afraid it will eventually affect orders for auto parts,” he added.

He hopes the company will maintain its gross margin of around 28.7% for the first quarter of the year. This, however, was lower compared with 29.6% over the same period last year. When asked of the rubber venture, he said it has been progressing well and the terms for the agreement are being finalised.

“We need to be more prudent in the implementation of the plan given the current economic situation,” Li explained.

In March, CAP signed a memorandum of understanding with SRI Elastomers Sdn Bhd to establish a production facility in Fujian province, China to recycle end-of-life tyres and other processed rubber scrap.

The joint venture will see investment of US$3 million (RM12.63 million) to set a production line with a capacity of 10,000 per year.

Meanwhile, at CAP’s special general meeting yesterday, shareholders approved a bonus issue of up to 810 millon shares on the basis of nine bonus shares for every 10 existing shares held.