HLA reported 4Q12 net loss of SGD53m, compared with 4Q11's SGD18m profit. The loss was mainly due to asset impairment and operating losses incurred by Xinfei (China white goods business). Excluding assets impairment, net profit would have been SGD17m. The relocation of Airwell's factory from Shenzhen to Taicang, Jiangsu and production delay also contributed to the loss. We cut our FY13F net profit by 18% to SGD36m - this core 2013 earnings growth isdependent on management's ability to reduce losses at Xinfei. HLA's valuation remains unattractive given this uncertainty. We maintain SELL with target price of SGD1.28, which is derived from SOTP.

Sharp losses at Xinfei. The number of fridge and freezers sold in 2012 fell 21% to 2.59m units. There was keen competition and over-capacity in the white-goods industry. Insufficient new models also led to revenue weakness for Xinfei. Xinfei's 2012 sales of SGD761m was 23% lower y-o-y. Besides Xinfei's asset impairment, there was an additional tax liability of SGD7m due to the Chinese tax authority disagreeing with Xinfei on the high tech incentive status granted for FY08 & FY09. The prospects for Xinfei remain tough for FY13, although sales in the summer months are seasonally stronger.

Yuchai recorded a 16% decline in diesel engines unit sales to 431k in 2012. The contraction was steeper for higher-margin medium and heavy duty diesel engines. Although ASP for Yuchai was higher y-o-y, Yuchai recorded margin compression due to the change in mix. Demand for diesel engines is expected to improve as China's economy grows.

Building materials unit (BMU) the most resilient. The buoyant Singapore construction industry benefitted BMU. However, BMU's gross margin was affected by higher raw materials and labour costs, and higher rebates given out by Tasek. However, BMU's 2012 PAT was the most resilient, up by 0.3% y-o-y.

Source: OSK