China machinery maker Zoomlion tightens customer credit as property market sags -analysts

Tue Jul 15, 2014 6:34am EDT

* Firm rejected some H1 concrete pump orders -analysts

* Seeks up to 30 pct downpayments on new contracts -analysts

By Fang Yan and Matthew Miller

BEIJING, July 15 (Reuters) - Chinese construction machinery maker Zoomlion Heavy Industry Science and Technology Co Ltd has told analysts it rejected some 15 percent of new orders for truck-mounted concrete pumps in the first half for fear that China's property market slowdown will hit customers' ability to pay for them.

The company, which warned on Monday that its first-half earnings would drop by as much as 70 percent, also told analysts in a briefing it is now requiring larger downpayments for new contracts. Zoomlion is trying to rein in accounts receivable that surged 47 percent to 27.8 billion yuan ($4.48 billion) as of the end of 2013 compared with the end of 2012.

Calls to Zoomlion officials seeking comment went unanswered on Tuesday.

New home prices in China fell in June for a third straight month, which hurts demand for Zoomlion's equipment. About half of its business is directly tied to the property market, with the rest linked to infrastructure among others.

"First-half property sales and property investment have slowed," said CLSA analyst Alexious Lee, who took part in the Zoomlion call. "This will remain an overhang on demand for construction machinery. No one dares to say which way the property market will be heading to in the next three years."

Zoomlion, like many of its rivals, offers leasing and financing options to boost sales. While that was a successful approach when the housing market was booming, helping it compete against foreign players like Caterpillar Inc and Japan's Komatsu Ltd, it has left local equipment makers like XCMG Construction Machinery Co Ltd and Sany Heavy Industry Co Ltd exposed to the risk of bad loans.

To rein in risk, Zoomlion has mandated 20 percent to 30 percent downpayments for new contracts, analysts said, citing Zoomlion executives speaking during a conference call. CLSA analyst Lee said the previous industry norm was that customers didn't need to make any downpayment on machinery orders.

Still, there is no sign of a major turnaround of China's overall construction machinery sector, struggling with a supply glut in the wake of the massive Beijing stimulus program that began in 2008. Zoomlion's same-town rival Sany, which is expected to report first-half earnings at the end of August, saw its January-March net income tumble 47 percent compared with the same period a year earlier.

Zoomlion is also facing a foreign exchange headwind now that the yuan had stopped appreciating versus the dollar. The machinery maker has to pay dollar-denominated interest for the dollar-denominated bonds on its cash draw, including a five-year $400 million bond issued in April 2012 and a 10-year $600 million bond issued in December of the same year, according to its 2013 annual report.

The company's Hong Kong traded shares closed down 3.04 percent on Tuesday, contrasting a 0.49 percent rise in the benchmark Heng Seng Index.

($1 = 6.2075 Chinese Yuan)

(Editing by Emily Kaiser and Kenneth Maxwell)

 
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