KUALA LUMPUR (Aug 28): Lower sales and higher operating expenses have hurt the earnings of the China-based companies for the second quarter ended June 30, 2015.

HB Global Ltd's net loss widened to RM11.5 million for the second quarter ended June 30, 2015, from RM7.97 million last year. Revenue contracted 29% to RM30.95 million, from RM43.63 million a year ago.

The loss was due to low demand for its products and high fixed costs of processing plant and duck farming business, which includes the high depreciation and amortisation of fixed assets.

For the six months ended June 30 (1HFY15), HB Global's net loss swelled to RM23.38 million, from RM9.32 million. Its cumulative revenue contracted 30.98% to RM53.39 million, from RM77.35 million last year, a filing to the local bourse showed.

HB Global said the decrease in sales of its RTS products and frozen vegetables was mainly attributable to continuous appreciation of the yuan against the Japanese yen. Its duck farming business, meanwhile, had temporarily suspended operations for an upgrading of facilities — a requirement imposed by authorities; while losses were mainly due to fixed cost incurred during the period, it added.

Separately, China Automobile Parts Holdings Ltd (CAP)'s net profit plunged 74.7% to RM5.17 million or 0.86 sen per share for the second quarter ended June 30, 2015, from RM20.42 million or 3.40 sen per share a year ago, dragged by lower average unit selling price and higher operating expenses.

Revenue shed 7.43% to RM110.91 million, from RM119.81 million in 2QFY15, caused by a 6.1% drop in average unit selling year-on-year.

CAP said reduced selling prices caused the group’s gross margin to decrease to 29.8% for 2QFY15, from 30.5% in 2QFY14.

Cumulative profit for the six months also declined 58.92% to RM17.19 million, from RM41.85 million last year. Meanwhile, Ccmulative revenue shed 21.66% to RM179.46 million, from RM229.08 million last year, caused mainly by weak market conditions.

CAP expected the rest of the current financial year to be very challenging, both operationally as well as to its margins, as the parts replacement market in China is competitive. However, it believed the Chinese government's effort to stem further weakness in the economy should help stabilise the automobile market, whilst sales volume is expected to see improvements.

Meanwhile, China Stationery Ltd recorded a net profit of RM6.15 million in its second quarter, as compared to a net loss of RM241.08 million last year. The net loss in 2QFY14 was due to impairment on fire in 2014.

Its revenue however contracted 40% to RM38.03 million, from RM63.49 million in 2QFY14, caused by lower sales of patented and non-patented products.

For the six months ended June 30, CSL's registered a net profit of RM15.44 million, from a net loss of RM212.8 million last year. Cumulative revenue plunged 65% to RM78.18 million, from RM222.44 million in 1HFY14.

Sales of Patented Products decreased by about 63.54% year-on-year, mainly due to economic slowdown in global markets.

Sales of non-patented products decreased by approximately 73.15% year-on-year, mainly after it did not sell and produce Sakura Plastic and Sakura Stationery from April 4, 2014 to March 31, 2015, following a fire at CSL’s production plant. The production had started in early May 2015.

CSL said its prospect would be affected by the currency movement, as it makes payment to suppliers in US dollar. The slowdown of European economies will affect the group, as this segment contributes 15% of its total revenue.

Shares in HB Global (fundamental: 1.25; valuation: 0.9) closed 1 sen or 14.29% higher at 8 sen today, for a market capitalistaion of RM32.76 million. Meanwhile, CAP (fundamental: 1.95; valuation:1.5 ) traded unchanged at 27.5 sen, for a market capitalisation of RM168.12million. CSL (fundamental: 1.2; valuation:0.9) on the other hand, traded unchanged at 6.5 sen, for market capitalisation of RM80.13 million.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)