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Zoomlion Profit Drops 48% After China Slowdown Saps Demand

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Aug. 29 (Bloomberg) -- Zoomlion Heavy Industry Science and Technology Co. reported a 48 percent drop in first-half profit as China’s slowing economic growth damped demand at the nation’s second-largest construction equipment maker.

Net income was 2.92 billion yuan ($477 million) in the six months ended June, compared with 5.62 billion yuan a year earlier, Zoomlion said in a filing to Hong Kong stock exchange yesterday. Sales fell 31 percent to 20.2 billion yuan.

Zoomlion slumped the most in almost two months in Hong Kong trading today as the company said there will be “limited room for growth” for infrastructure investment in the second half and real estate construction will remain at a low level. The equipment maker and bigger rival Sany Heavy Industry Co. are contending with weaker sales as growth of fixed asset investment slowed in China.

“Trade receivables increased, and this continues to remain a source of concern,” Vik Chopra, a Hong Kong-based analyst at Sun Hung Kai Financial Ltd., wrote in a note today. “Investors were hoping to see a sliver of evidence of improving concrete machinery growth from the company.”

Zoomlion fell 4.6 percent, the most since July 2, to HK$6. The stock has dropped 47 percent this year. Chopra cut target price for the share to HK$6.25 from HK$7.50.

Trade Receivables

Trade receivables excluding provision for impairment as of June 30 was 23.7 billion yuan, 28 percent more from six months earlier, according to Zoomlion’s statement.

Zoomlion, based in Changsha city of central China’s Hunan province, halted stock trading at least twice this year after news reports questioned its sales data. The company has repeatedly denied the allegations.

China’s urban fixed-asset investment growth eased to 20.1 percent in the first half from a year earlier, the official Xinhua News Agency reported in July. The expansion was down 0.3 percentage points, according to the report.

Economic growth in China slowed for a second straight quarter to 7.5 percent in the three months ended in June, extending the longest streak of expansion below 8 percent in at least two decades.

“Market demands for construction machinery are likely to continue a downward trend,” Zoomlion said. “The Company will continue its tightened credit policies and place receivables collection and improvement in operation performance the highest priority.”

Zoomlion is planning to boost sales of its environmental machinery in a bid to offset the lower demand for its other products and boost profit. The company is also seeking to raise sales from outside China through acquisitions or cooperating with overseas businesses.

To contact the reporter on this story: Jasmine Wang in Hong Kong at jwang513@bloomberg.net

To contact the editor responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net

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