Thakral expects red ink in the first half-year

THAKRAL Corp, which has been struggling with falling profitability in recent months, has slipped into the red for the first half of its current financial year ending March 2006.

In a profit warning issued yesterday following a preliminary assessment, Thakral revealed that it suffered total losses of $2.85 million in July and August. For the five months to August, it suffered losses of $640,000, based on unaudited management accounts.

The major trading and distribution player in China said it now expects to report a loss for the first half, which ended on Sept 30. It will announce its unaudited first-half results in the second week of November.

The group made a net profit of $9.3 million in the corresponding period a year ago.

According to the group, the situation is mainly due to a significant slowdown in sales in the second quarter arising from heavy competition as well as from parallel inflow of competing products which reduced gross margins.

The group also incurred unforeseen charges from the provision of price protection to dealers as well as investment in marketing development activities.

'For the rest of FY2006, the board of directors expects the group to continue operating under difficult market conditions,' Thakral warned.

The group said that its financial position remains fundamentally strong. Its net asset value per share was 14.22 cents at the end of August compared with 14.15 cents at end-June.

But in terms of profitability, the cautionary signs have been around for some months. In Q106, Thakral posted a 57 per cent year-on-year fall in net profit to $2.2 million while turnover slipped one per cent to $126.1 million.

For the financial year ended March 2005, it reported a net profit of $18.5 million, down 18 per cent from a year ago, as turnover rose just one per cent to $535.3 million.

Thakral generates about 85 per cent of its business from China. Earlier this year, managing director Inderbethal Singh Thakral announced plans to more than double its distribution network of 4,200 retailers in the Chinese mainland to 10,000 in three to four years.

The profit warning is also bad news to China Yuchai, which is 20 per cent owned by Hong Leong Asia. Hong Leong Asia is controlled by Singapore property tycoon Kwek Leng Beng. China Yuchai acquired 15 per cent interest in Thakral in February for $30.9 million, according to an earlier report.

And last month, China Yuchai announced the purchase of 17.8 million shares or one per cent of Thakral from ABSA Bank for a total $1.4 million.

Investors remember Thakral for shocking the market in 1999 with a $220 million loss from dabbling in currency trading