FY08 results in line

Li Heng’s FY08 results were below consensus but largely in line with our

estimates. Full-year revenue grew by 34.2% yoy to RMB3.7b, driven by a

higher sales volume. An unrealised forex loss of RMB51m resulted in a

net loss in 4Q08, bringing its full year earnings down by 10% yoy.

Excluding that, 4Q08 would have been profitable at RMB42m.

Under severe pricing pressure

The average selling prices (ASP) of its nylon yarn products were down by

36% yoy in 4Q08 due to severe price pressure since Sep 08. As the ASP

declined faster than cost of raw materials, gross profit margins in FY08

contracted to 28.7% from 34.4 % in FY07. To minimise its inventory’s

exposure to steeply declining raw material prices and ASPs, the Group is

reducing its inventory holding period to one month (from two months).

Still declaring a final dividend

Its cash position stood at RMB1.3b and a final dividend of $0.01 was

declared. This brings total dividends declared in FY08 to $0.04,

representing a payout of 37%. While such a high payout ration is unlikely