Pearl River diversifying into non-tyre businesses
Pearl River Tyre (Holdings) Limited reports that the disposal PRT Capital Pte Ltd took place on 16 April 2013. Upon completion of the HK$85 million (£7.2 million) deal, PRT Capital will cease to be a subsidiary of Pearl River Tyre and the financial results will no longer be consolidated with that of the group.
Explaining its decision to sell PRT Capital, Pearl River Tyre pointed out that its principal business, Guangzhou Pearl River Rubber Tyre Limited, specialises in the manufacture and sale of commercial vehicle tyres – a business it says is subject to increasing levels of market risk. As a result, the company’s Board decided to explore “new strategic businesses to diversify its earning base and to enhance long term shareholders’ value”. With this in mind, in November 2012 a Pearl River subsidiary entered into a purchase agreement to acquire a 72.70 per cent equity interest in IC Spectrum (Kunshan), a company principally engaged in the electronics sector. Based on the forecast and assessment of ICS’s management, the Pearl River Tyre (Holdings) Board is “optimistic that the new investment will contribute positively to the group’s future earnings growth in the long term.”
Guangzhou Pearl River Rubber Tyre
Pearl River’s joint-venture tyre subsidiary faired much better last year than in 2011. Revenues generated by the Guangzhou Pearl River Rubber Tyre Limited joint venture rose 25 per cent year-on-year and the operation recorded a net profit of HK$21 million (£1.8 million) as opposed to a loss of HK$99 million (£8.3 million) in 2011, with margins rising from 0.39 per cent to 10.8 per cent. The growth in revenue is mainly attributed to increasing sales volumes in export markets such as Yemen and Bangladesh, while lower raw material prices played a “significant role” in the joint venture’s profitability in 2012.
Guangzhou Pearl River Rubber Tyre’s sales of light truck radials increased more than 90 per cent year-on-year and contributed to about 14 per cent of total 2012 sales. The company intends to invest in its “fledging radial tyre business” while maintaining a reasonable scale of cross-ply commercial tyres; however it acknowledges that the cross-ply tyre market is “facing intense competition from radial tyres, which resulted in a significant decrease in the overall demand for bias tyres.”