Judging from the semi-annual performance forecasts recently released by some companies, several companies will be in a loss-making state, and large enterprises are also experiencing sharp declines in profits. Will the industry improve in the second half of the year?

　　Changlin Co.: 2014 First-Half Loss Forecast Announcement

On August 23, Changlin Co. announced that, based on preliminary calculations by the finance department of Changlin Co., Ltd., the company's operating results for the first half of 2014 are expected to show a loss, with net profit attributable to shareholders of the listed company of approximately -55 million yuan.

　　Changlin Co. stated that, affected by the downturn in the construction machinery industry, the company's product sales gross margin remains low, and the profitability of its main business has not yet improved significantly.

　Hebei Xuanhua's First-Half Net Profit Falls Nearly 30%; Excavator Revenue Only 200,000 Yuan

　　The first half of each year should be the peak season for the construction machinery industry, but this year the entire industry has felt a chill. According to data disclosed by several leading construction machinery enterprises, LiuGong's first-half net profit fell nearly 40%, and Zoomlion's net profit fell about 60%. To cope with the overall downturn in the construction machinery industry, Zoomlion recently spent 2.1 billion yuan to acquire Chery Heavy Industry and enter the agricultural machinery sector.

　　Against the backdrop of the industry downturn, second-tier Hebei Xuanhua is also having a hard time. On August 20, Hebei Xuanhua disclosed its semi-annual report, showing that in the first half of the year, the company's revenue and net profit both declined by more than 20%, and the company's excavator revenue was only 200,000 yuan. In addition, the company's accounts receivable reached twice its revenue, and inventory hit a new high in nearly five years.

　　Net Profit Falls Nearly 30%

　　On August 20, Hebei Xuanhua, the first listed company in Hebei Province's machinery industry and the only listed company in Zhangjiakou, disclosed its semi-annual report, showing that during the reporting period, the company achieved operating revenue of 162 million yuan, down 21% year on year; net profit of 1.94 million yuan, down 29% year on year; and net profit after deducting non-recurring gains and losses of 1.73 million yuan, down 37% year on year.

　　Regarding the reasons for the decline in performance, Hebei Xuanhua explained that it was mainly affected by the sharp decline in downstream demand. "Since the first half of the year, especially since the second quarter, affected by changes in the macroeconomic environment, market demand for construction machinery has dropped sharply."

　　After the Spring Festival each year is the peak sales season for construction machinery. However, this year construction machinery enterprises generally encountered a situation where the peak season was not prosperous. Previously, LiuGong issued a performance express report stating that it expected net profit to fall sharply by 38.19% in the first half of this year.

　　Zoomlion, a leader in the engineering industry, also stated that in the first half of the year, affected by the continued slowdown in national fixed asset investment, especially real estate investment growth, market demand for construction machinery products was sluggish, causing the company's operating revenue from concrete machinery and hoisting machinery products to decline significantly year on year. It expected net profit to fall by 60% to 70% in the first half of the year.

　　On August 5, when reporting on the industry situation in the first half of the year, the China Machinery Industry Federation also stated that in the first quarter, the recovery in the construction machinery industry's prosperity had been relatively obvious, but in April and May it fell back again, mainly affected by insufficient mining operation rates and declining demand for earthmoving machinery for coal, mining, and sand and gravel materials. Among them, from January to June, the monthly and cumulative output of excavators and loaders, representative products of construction machinery, both declined year on year.

　　Hebei Xuanhua's semi-annual report also shows that among the company's main products, bulldozers achieved operating revenue of 150 million yuan, while excavators generated only 200,000 yuan in revenue, and rough castings generated 3.82 million yuan, with gross margins all declining.

　　"Xuanhua's excavators are priced lower than those of other manufacturers, but the price advantage has not brought sales growth," an observer in the construction machinery industry told the reporter.

　　The company's semi-annual report also shows that in the first half of the year, Hebei Xuanhua's excavators achieved operating revenue of only 200,000 yuan, down 90% year on year, while costs were 253,000 yuan, with a gross margin of -26%.

　　It is understood that in the first half of the year, Hebei Xuanhua not only suffered sluggish sales, but also had high accounts receivable and inventory.

　　The company's semi-annual report shows that Hebei Xuanhua's accounts receivable remained high in the first half of the year, reaching 358 million yuan, up 10% year on year. Accounts receivable were 2.2 times operating revenue, of which accounts receivable within one year were 254 million yuan, accounting for 86.5%. At the same time, Hebei Xuanhua's inventory also reached a new high since 2010, at 451 million yuan, up 18% year on year.

　　The above industry observer believes that hundreds of millions of yuan in accounts receivable and inventory are undoubtedly making things worse for Hebei Xuanhua, which has operating revenue of only 160 million yuan and net profit of less than 2 million yuan.

　　In addition, facing enormous operating pressure, Hebei Xuanhua stated in its semi-annual report that the company will aim to improve the quality and efficiency of economic operations, carefully analyze problems and gaps in sales, product R&D, manufacturing costs, quality control, and other areas compared with advanced enterprises, promptly take effective measures to mitigate market risks, and reduce the company's operating costs by adjusting product structure and tapping internal potential.

　　Regarding the company's high accounts receivable and inventory as well as corporate transformation issues, the reporter called the securities department of Hebei Xuanhua for an interview. An office staff member of the department said that the company's securities affairs representative was not in and the board secretary was in a meeting, and provided the board secretary's mobile phone number for the reporter to contact. Subsequently, the reporter called and sent text messages to the board secretary multiple times, but as of press time, had received no response.

　　Jifeng Agricultural Machinery Reports First-Half Loss of 57.88 Million Yuan; Divests Loss-Making Construction Machinery Business

Operating Revenue: 2.054 Billion Yuan, Down 29.8% Year on Year

　　On the evening of August 25, Jifeng Agricultural Machinery released its semi-annual report. From January to June, the company achieved total operating revenue of 2.054 billion yuan, down 29.8% year on year; net profit attributable to shareholders of the listed company was -57.8857 million yuan, down 1342.6% year on year; basic earnings per share were -0.162 yuan. The company plans not to distribute cash dividends, not to issue bonus shares, and not to increase share capital from capital reserves.

　　The loss in performance was mainly due to the drag from the construction machinery segment. The construction machinery industry continued to bottom out, with no signs of improvement in the medium to long term, and the company's performance continued to be dragged down during the reporting period. In response to the continued downturn in the construction machinery industry, in order to control and reduce the risk of further losses in this segment, the company will strengthen debt collection for the entire construction machinery segment and the processing and turnover of repurchased used machines. At the same time, in the next reporting period, it will divest its construction machinery business by transferring the equity of its controlled subsidiary Sichuan Jifeng Great Wall Construction Machinery Co., Ltd., to reduce its burden and move forward with a lighter load.

　　For future development, the company has a clear approach: transform into a comprehensive agricultural machinery service provider. During the reporting period, the company carried out strategic transformation and business adjustment, accelerated "closure, suspension, merger, and conversion" optimization work. Among the company's existing directly operated grassroots stores, 7 have been deregistered and 31 have ceased operations pending deregistration, totaling 38, mainly distributed in southern regions such as Sichuan, Yunnan, Guangdong, and Guangxi. The sluggish performance also caused institutions to retreat. The shareholding status of the top ten tradable shareholders shows that the holdings of Tibet Shannan Shenyu Venture Capital Management Partnership, which was on the list at the end of the first quarter, did not change in the second quarter; apart from that, all were natural person shareholders.

　　In the semi-annual report, the company also analyzed its performance for the first three quarters: "Since there are no signs of improvement in the construction machinery industry in the medium to long term, in order to reduce the pressure of continued losses on the listed company and move forward with a lighter load, the company has carefully studied and plans to complete the equity transfer and business divestiture of Sichuan Jifeng Great Wall Construction Machinery Co., Ltd. in the next reporting period. After the divestiture is completed, this subsidiary will no longer be included in the company's consolidated financial statements. Although the company is increasing merger and acquisition efforts, in line with searching for high-quality targets with good profitability that fit the company's strategy, it will not be able to complete the turnaround in a short period. The pains of the company's strategic transformation and the guarantee responsibilities of the company for the construction machinery subsidiary to be divested will be carefully subjected to impairment testing and loss provisions. It is expected that the cumulative net profit from the beginning of the year to the end of the next reporting period will continue to be negative."

　　Fangyuan Bearing: Construction Machinery Industry Still in a Consolidation Phase

　　August 25 news: Fangyuan Bearing introduced in its latest "Investor Relations Activity Record" that the construction machinery industry is still in a consolidation phase, an adjustment period after rapid development in the earlier period.

　　Fangyuan Bearing stated that the company's machinery and equipment are highly competitive both domestically and internationally, and the company's competitors are mainly foreign brands.