Brilliance Auto 08, 09 earnings forecasts cut 57%

BEIJING (XFN-ASIA) - JPMorgan said it has cut its 2008 and 2009 earnings estimates for Brilliance China Automotive to reflect lower sales forecasts for the company's minivans and Zhonghua sedans over the period.

In a note, JPMorgan said it has cut its 2008 and 2009 earnings forecasts by 57 pct each to 191 mln yuan and 209 mln yuan.

The brokerage has cut its 2008 and 2009 minivan sales forecasts by five and six pct, respectively, while its forecasts for Zhonghua sedan sales have been slashed by 22 pct and 20 pct.

"Given the dual pressure of lower sales volume and higher steel costs, we expect Brilliance China's Zhonghua sedan business to slip back into the red in 2008. We now expect this business to make a loss of 264 mln yuan and 304 mln yuan in 2008 and 2009," the note said.

JPMorgan had previously forecast losses of 136 mln yuan and 174 mln yuan.

It has also cut its earnings forecasts for Brilliance's BMW joint venture. It said the venture is expected to contribute 181 mln yuan profit this year and 205 mln yuan in 2009, down from earlier estimates of 280 mln yuan and 310 mln yuan.

"We are concerned about Brilliance's earnings quality. We maintain our view that visibility and sustainability of earnings may be worse than expected, given many uncertainties in its different business lines," JPMorgan said.

"While the company's core operations turned around in 2007, its earnings quality remains very weak, especially that of its Zhonghua sedan business," it said.

It added that Zhonghua sedan sales were helped by the country's booming auto sector last year, but now that a cyclical downturn is expected, this segment of its business could "easily" slip back into the red.

JPMorgan said China's second auto boom may have run out of steam as household disposable income growth has slowed, while the poor performance of the country's stock and property markets has also had a negative wealth effect.

This cyclical downturn could remain until demand for cars in third tier cities starts to rise, most likely in 2010 or 2011, JPMorgan said.

The company has a "neutral" rating and 0.80 hkd price target on Brilliance China.

The automaker's shares were down 2.17 pct at 0.90 hkd this afternoon in Hong Kong.