China's SAIC Q2 jumps, bumpy road seen ahead

Top Chinese automaker SAIC Motor Corp's second-quarter net profit jumped 266 per cent to a record high thanks to demand fuelled by government incentives.

But a slowdown in the world's biggest auto market has raised concerns the company faces a bumpy road ahead.

Most Chinese auto groups from Dongfeng Motor Group to Chongqing Changan Automobile have been on a bull run since 2009 as incentives pushed auto sales to record levels.

But the frantic expansion has moderated since May, with the situation deteriorating further in June and July.

"The summer months are a big challenge for all industry players - it's the slow season," said Zhang Xin, an analyst with Guotai Junan Securities.

"A slowing economy and last year's high comparative base also make it difficult for anyone to match the runaway sales growth of a year ago in the second half."

SAIC, which runs manufacturing ventures with General Motors and Volkswagen, is holding up relatively well due to its partners' aggressive push for new models, which has helped attract buyers to showrooms, analysts said.

SAIC's broad portfolio of sedans, trucks, buses, SUVs, MPVs and mini-vans also makes it more resilient than peers who make only cars, they added.

The automaker sold 24.6 per cent more vehicles in July than a year earlier, its slowest monthly gain so far this year but still far better than the overall market's 14.4 per cent rise.

In its stock exchange filing on Wednesday, SAIC did not give earnings guidance for the second half or the full year.

It warned about uncertainties ahead but also noted positive factors such as Beijing's policy incentives which remain in effect through year's end.

"Based on the favorable and unfavorable factors, we expect the domestic auto market to resume its stable and normal growth pattern this year," SAIC said. "Full-year vehicle sales (nationwide) will exceed 16 million units, up over 17 per cent from a year earlier."

Chairman Hu Maoyuan told shareholders last month that SAIC was confident of hitting its 2010 sales target of 3 million vehicles.

That would set SAIC apart from Warren Buffett-backed BYD, which slashed its 2010 sales target by 25 per cent after its June auto sales fell by about a fifth from May.

From April to June, SAIC booked 3 billion yuan ($441.4 million) in net profit, its biggest quarterly earnings ever and a touch ahead of an average forecast of 2.9bn yuan from three analysts surveyed by Reuters.

Its year-ago quarterly earnings totaled 818.9 million yuan.

The Shanghai-based automaker had said in July it expected a more than 300 percent jump in first-half earnings.

Before the results, SAIC shares traded in Shanghai closed down 2.6 percent at 15.6 yuan, better than a 2.0 percent fall of the benchmark index. The stock has dropped 22.4 percent this year versus an 20.8 percent fall in the wider market. ($1=6.796 Yuan) (Editing by Valerie Lee and Michael Shields)